Northern Trust sees private credit boost as global equities even out

Northern Trust Asset Management (NTAM) has put forward its new decade-long Capital Markets Assumptions (CMA), with global equities expected to come down from its highs and pave the way for private markets to deliver.

The annual forecast also suggested three key concepts the firm expects to drive returns of stocks, bonds, real assets and alternatives, including:

• “Artificial Intelligence (AI)-Enabled Productivity: As companies invest in artificial intelligence, AI-enabled productivity will enhance economic growth. This should help countries combat shifting demographic trends that potentially damage productivity, while also boosting economic growth.
• Navigating the Energy Transition: Global energy demand continues to increase, along with a desire for energy independence. Global economies must navigate policy, technological innovations and finance mechanisms to meet those demands. How energy is generated or accessed over the next decade will be critical to long-term economic, climate and investment impacts.
• Globalisation: Bent, Not Broken: Globalisation may have slowed but it has not reversed. Geopolitical tensions are morphing supply chains and trade pacts, which will lead to risks and opportunities over the next decade. This may present investors with the opportunity to be increasingly selective.”

“The next 10 years will present investors with a complex landscape of market and economic trends to navigate,” NTAM Global Chief Investment Officer, Angelo Manioudakis, said.

“As economic growth moderates, we think investors will look to uncover future drivers of growth. We believe the adoption of AI, new energy sources and trends in global trade will cause divergent paths in economic growth globally.”

The CMA also contained NTAM’s expected long-term average annualised returns across several asset classes:

• Equities: 7.5% annualised return for U.S. equities and 5.8% annualised return for developed markets ex-U.S. equities, as we expect U.S. stocks to continue to outperform European stocks, and 6.4% annualised return for emerging markets.
• Fixed Income: 4.7% annualised return for U.S. investment grade bonds and 5.6% annualised return for U.S. high yield bonds, with strong fundamentals supporting high yield securities
• Real Assets: 6.6% annualised return for global listed infrastructure, where utilities could benefit from a surge in electricity demand from AI
• Alternatives: 8.4% annualised return for private credit and 10.1% annualised return for private equity, supported by AI opportunities and potentially more mergers and acquisitions (M&A)

“Over the next decade, we expect equity returns to moderate from the highs of the last couple of years. In the bond market, we believe credit spreads will increase from current low levels but stay below the long-term average, supported by stable economic growth and solid credit fundamentals,” NTAM Chief Investment Officer of Global Asset Allocation, Anwiti Bahuguna, said.

“Private investments may prove to offer even more attractive returns relative to the public equity and bond markets. Declining interest
rates will drive demand for private credit to boost M&A activity, while AI and other technology advances will push low double-digit growth in private equity and venture capital.”