The current and future trends driving European private markets

13 December 2021

To mark the Women in Private Markets Summit, a leading diversity event that Macquarie proudly sponsors, we spoke to our senior industry experts to understand the challenges and changes the sector has seen in recent years, as well as current market trends.

With industry themes crystallising around decarbonisation, digitalisation, and infrastructure, change in the industry over the last decade has been dynamic and fast-moving. “The industry has changed so much. Right now, what I see is tremendous momentum and so much willingness to deploy capital. The amount of financial support going into these sectors is quite different to when I started out. And, while bespoke structuring solutions still need to be found on many projects, particularly around the new asset classes, it is much easier now because there is so much capital available to support this work,” explains Alexandra Nilsson, senior vice president at Macquarie’s Green Investment Group.

According to Federica Cristina, a managing director at Macquarie Capital, the importance of ESG (Environmental, Social and Governance) has become much clearer, as she explains: “Previously ESG was less in focus when discussing projects with clients, whereas now it is an integral part of the investment proposition. Not only is the focus of our investment activity on the environment and its impact, but also on society more broadly.”

Gemma McRann, senior vice president, Macquarie Capital, agrees: “I think we will start to see more ESG-linked financing coming from the private sector, with targets and key performance indicators set for projects to perform more efficiently or be more sustainable. And, in turn, this will impact the cost of institutional capital – which is already being made available at a lower cost – for projects and assets where there is a key focus on ESG outcomes.” 

From top left to bottom right: Alicia Teh, Chandra Eastwell, Daisy Hamra, Ellie Sallabank, Federica Cristina, Gemma McRann, Marguerite Polge De Combret, Oriana Lietar, Sarai Jacob-Whelan and Tauhida Babagana – talk about how we’re making an impact in private markets across Europe.

The role of private sector capital in decarbonisation

It is estimated that to mitigate the impacts of the climate change on communities worldwide and achieve net zero by 2050, around $US5 trillion of investment will be needed each year between now and 2030. The role of private sector capital in meeting this funding requirement and driving investment into environmentally sustainable projects globally is clearer than ever.  In November 2021, a Macquarie delegation led by Managing Director and Chief Executive Officer Shemara Wikramanayake attended COP26 in Glasgow to champion the role of the financial sector in addressing the climate challenge and the leading climate initiatives we are involved with – such as the Glasgow Financial Alliance for Net Zero and the Climate Finance Leadership Initiative.

Macquarie has also been supporting the commercialisation of emerging climate solutions and technologies by actively engaging with our clients to find solutions to their own decarbonisation challenges. Increasingly, clients are seeking to expand outside traditional renewables into innovative investments linked to the energy transition and alternative routes to decarbonisation.

Crucially, as Alexandra Nilsson tells us: “We don't just need renewable energy or renewable fuel, we also need to look at the production of everything across the value chain. On construction methodology, for example, whether in housing or transport there is work to be done on how processes can be made more efficient, sustainable and forward-looking. While in aviation, considerations go far wider than fuel and into fabrication, for example, and the possibility of using materials such as ‘green steel’.”

Macquarie has been working with its portfolio companies to go through the steps needed to reduce their emissions as, “We can only become a fully net zero business if our portfolio companies make – and meet - decarbonisation commitments of their own,” Mary Nicholson, head of responsible investment for Macquarie Asset Management, explains. “We've committed to having that done by the end of 2022, which is quite an ambitious undertaking across a portfolio of our size and in which we have businesses at different stages. Some are advanced – already making commitments to the Business Ambition for 1.5 degrees Pledge, while others have never been asked to calculate baseline emissions before, so they are really starting from the beginning.”

Overcoming challenges to deliver on digitalisation ambitions 

In addition to decarbonisation, digitalisation is also a major focus area across private markets. Although an area of growth that was well underway before COVID-19 hit, it was dramatically impacted by changes in demand that were driven by remote working patterns globally. “The globalisation of our economies is linked to improvements in technology and ongoing digitalisation; the two have come together to create a huge demand for data, and that is leading to a greater need for digital infrastructure assets to provide reliability and speed,” explains Saraf Anan, a senior vice president within Macquarie Asset Management.

Collaboration is the key to overcoming the challenges of decarbonisation and digitalisation. Macquarie is focused on bringing together different parts of industry – from public finance institutions and policymakers to technical, financial and legal experts in the private sector. The role of strong partnerships at global, national and local levels was underlined in the UN’s Decade of Action plan, and Macquarie is committed to bringing together new and established players to lead and contribute to these challenges and create positive change.

“We are seeing social and environmental impacts as key focus areas for governments in how they evaluate bids/projects and increasingly in the private sector in their investment strategies.  The real innovation is going to come from all parts of the industry collaborating and coming together, whether it's developers, advisors, governments, construction companies, operators, investors or lenders, each part of the supply chain need to focus on its own impact - as well as the overall project impact,” adds Gemma McRann.

“There are fundamental things that are about to change – things that need to change - for us to continue living in the world that we live in today, and Macquarie is really at the forefront of helping to finance the transition both on the infrastructure side and on the emerging technology side. It is a real opportunity, and privilege, for us to be able to support the changes that need to happen - with the capital that we have been entrusted with,” adds Saraf Anan.