We are in uncertain times politically, geopolitically and economically. It is this uncertainty that drives our high degree of confidence in the outlook for our three investment platforms – Credit, GP Strategic Capital and Real Estate.
Looking into 2024 at a U.S. macro-level, the Federal Reserve’s sustained campaign against inflation is showing preliminary signs of success. Subsequent indicators, however, may prove otherwise, and it will be interesting to see how the overall economy fares going into the first quarter of the year. Regardless, the recent rally in stocks and bonds suggests investors are very optimistic about the potential for interest rate cuts after an unprecedented period of tightening monetary policy. Given how stubborn inflation is and how strong the performance of the economy appears to be through the lens of our portfolio companies, we are not so sure about this very broadly accepted view.
If the cost of capital eases even modestly, the floodgates of M&A may begin opening as private equity firms seek to deploy a record $2.6 trillion of dry powder. The tailwinds of this deployment can benefit the overall alternatives industry, creating an especially potent advantage for firms such as Blue Owl, whose capital solutions are intended to service the needs of financial sponsors.
Less clear is the state of global affairs. The conflict in the Middle East is a human tragedy first and foremost, but thus far has had limited impact on the financial markets. This could change if the conflict continues with the potential for repercussions across the broader EMEA region. Uncertainty with China also persists, especially as it relates to capital commitments from U.S. investment firms and ongoing trade disputes. Throw in a U.S. Presidential election, and even the most self-assured markets forecaster may want to pause for a moment of self-reflection.
Within this potentially dichotomous paradigm, Blue Owl will continue to focus on driving value for our investors and our users of capital.
As has always been the case for Blue Owl, the focus of our products and solutions is on income generation and capital preservation, two areas investors tend to prioritize during times of uncertainty. This coming May will also mark three years as a public company, a milestone we are excited and incredibly humbled to celebrate.
With all that said, we invite you to delve deeper into the outlooks for each of our three investment platforms. We hope these can serve as a helpful roadmap for how we think about our respective business areas and provide some insights into the markets in which we operate.
We wish you all the best this year.