Partners Group’s market outlook for 2020

Partners Group’s market outlook for 2020


We’re currently witnessing the longest
economic expansion since the 1930s. Asset prices have rallied strongly but
economic and earnings growth have remained subdued. As a result valuations
are at the upper end of historical ranges. Looking ahead our base case macroeconomic scenario is one of
continued positive but low growth. Any deviation from the current mix of weak fundamentals low discount rates and high valuations could lead to a pronounced correction in asset prices. In a late cycle environment most investors look for defensive assets. They seek assets providing cash flow security such as defensive industries in equities or core assets in infrastructure and
property. On one hand this implies increased downside risk, less from the
asset itself, even though we see some disruption risk in certain of those
assets, but more from a valuation perspective. On the other hand even in a
more benign scenario the return potential of those assets going forward
is mediocre at best. This is why we believe that offense is the new defense. You have to build cash flows rather than buying them at high valuations. First we identify transformative trends
that generate higher growth rates in very specific sub sectors. Second within
those sub sectors we look for companies where we as owners can actively build
out cash flows through asset level value creation enabled by strong
entrepreneurial governance. In other words while everyone loves to buy cheap that’s often not possible today. We can make sure however the time is on our side by, one, investing in the right themes and, two, investing in assets where we can create growth beyond that.

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