New Year demands LPs and GPs find new solutions

The myriad challenges facing the world presents private markets with a lot of unanswered questions – the hunt to find their solutions promises to be a fascinating journey.

Happy New Year one and all and welcome to 2023.

So, where did we leave things at the end of 2022 and what’s on the agenda for the year ahead?

The biggest news from December was no doubt the landmark agreement reached at the COP 15 UN Biodiversity Summit in Montreal, where 188 governments signed the highly anticipated Kunming-Montreal Global Biodiversity Framework.

The framework has an overarching 2050 goal of creating a world “living in harmony with nature.” Of the tangible targets that will have to be achieved by 2030 to put the Earth on a pathway to achieving this, there are several that stand out.

By 2030, signatories will have to contribute to protecting 30 percent of the planet’s lands, oceans, coastal areas and inland waters; they must cut food waste in half; reduce by 50 percent excess nutrient and pesticide use; and must mobilize $200 billion per year in domestic and international biodiversity-related funding, which would have to rise from the $133 billion per annum that is invested into all nature-base solutions today.

And of the major themes from last year that will have a big impact on the 12-months ahead, the triumvirate of high inflation, increasing interest rates and the cost-of-living crisis will continue to flash red on the dashboard.

The IMF, among many other public and private bodies, anticipates global food prices will remain elevated in 2023. Writing for Agri Investor at the end of last year, agtech company RedSea’s chief executive Ryan Lefers said he believes “the effects of the Ukraine war and the hot summer of 2022 will really begin to bite in 2023.”

“People will likely see the emergence of extreme food scarcity in the poorest countries, or in more minor ways in wealthier countries,” wrote Lefers. “We can expect complete shortages of food in the form of famine to reappear (possibly in the Horn of Africa) with shortages and high prices of commodities like ketchup also appearing.”

The impact of a higher cost of borrowing on private markets is beginning to reveal itself, with LBOs already impacted and some stakeholders anticipating pensions could reduce their private market allocations by around 5 percentage points if “interest rates stay mildly high.”

With all signs pointing to further increases of the base rate in the US, the UK and Europe, investors and their managers will have to find different and creative ways to limit their outgoings, extend cash runways and make themselves indispensable to clients and consumers.

This is, of course, while increasing their ESG investments to decarbonize portfolios, reach corporate net-zero targets and to simply keep pace with regulation.

It promises to be a fascinating year.

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