Higher interest rates, the pace at which central banks will cut rates, a possible recession and regulations on sustainability and digitalisation. In their expectations for 2024, Investment Officer experts and columnists name these as the key themes.
In the line-up below, our columnists and knowledge experts tell what challenges they expect within their field for the coming year. Which immediately answers the question about which topics you can expect contributions from them in 2024.
On behalf of the editors and all our columnists and staff, we wish you a healthy 2024!
Han Dieperink: trends and portfolio construction
«The basic scenario for next year is a soft landing. Possibly, increased interest rates could cause a recession or a financial system crisis. Then the money tap goes wide open and the likelihood of another scenario increases: an equity market hype. Even for the long term, this year is probably the best entry point of the century. Rising interest rates, a rapid increase in investment opportunities and falling costs make for the highest forecast return in 100 years for a neutral portfolio.
«Interest rates are likely to fall further next year. In the longer term, interest rates are rising due to higher economic growth as a result of more productivity growth, the greater contribution of India and China and strong demand for money as a result of many capital-intensive investments, just as the baby boomer generation is retiring. Productivity growth is possible thanks to artificial intelligence, amplified by geopolitical risks resulting in necessarily more innovation.»
Han de Jong: economics and markets
«Four questions are central to formulating a vision for 2024. The first is whether inflation is already more or less under control. Although inflation has fallen remarkably fast, uncertainties are high and these are preventing rapid and sharp interest rate cuts for now.
«The second question is how severe the downturn in the US business cycle will become. Growth in 2023 has been supported by households inoculating savings and expansionary fiscal policy. Those factors are disappearing while the negative effects of increased interest rates remain. The risk of a rather hard landing is therefore real.
«The third question is whether the Chinese economic recovery will continue. That seems likely although growth will not be exuberant because of problems in the real estate sector.
«The fourth question is whether artificial intelligence will have a material impact on labour productivity as early as 2024. This could well be the case, but is highly uncertain.
«On balance, I don’t think the outlook for the economy and for risky investments is great.»
Anne Gram: sustainability
«The trend of greater awareness about the importance of sustainable investing will continue to gain momentum. Sustainable investing has become mainstream. Investors see climate disruption unfolding before their eyes and want their money invested green. Financial institutions will become more conscious of their cash flows and use them to solve the problems rather than exacerbate them.
«Pension funds will take further steps on climate and, increasingly, biodiversity is also coming more into the picture. Biodiversity loss and climate change are highly interconnected and require an integrated view. Both outside-in and inside-out. On the one hand: what is the impact on assets? How does climate change affect our investments and how can those risks be made transparent and managed? And on the other: what is the impact of investments on the world? Institutional investors, partly under pressure from increasing laws and regulations, will elaborate on this.
«Good governance and human rights continue to be important preconditions for investments. Diversity and inclusion will receive more explicit attention.»
Koen van Mierlo: private markets
«Private equity investors face a challenging investment climate with further increased interest rates and uncertainty around inflation and monetary policy. As a result, the return potential of the debt-dependent buyout segment in particular is under pressure until the expected fall in interest rates materialises. Fund managers no longer have access to cheap debt financing, see free cash flows fall due to higher interest costs and have to navigate through a cooled exit market.
«This investment climate offers fund managers a prime opportunity to justify their relatively expensive cost structure. In particular, parties with expertise in operational improvements, alternative transaction structures or restructuring the capital structure can stand out and successfully raise funds. At the same time, it is quite conceivable that economic challenges increase dispersion in fund returns, underlining the importance of a sound selection process. Finally, the need for liquidity solutions remains high for both investors and fund managers, making investments in secondaries interesting.
«Even with cooled investment sentiment and challenges around implementation, the rational investor triumphs. Private equity is no exception.»
Frank ’t Hart, Hart Advocaten: law and regulation
«2024 is the year of preparation for DORA and the Retail Investment Strategy (RIS) to be complied with from early 2025.
«The (Dutch financial supervisor) AFM has recently started pushing investment firms and fund managers to already take stock of which agreements have been concluded with which ICT suppliers. The next step, of course, is for those agreements to meet the substantive requirements of DORA. Institutions will have to determine more meticulously to whom they outsource and will have to have an exit strategy in place. This should take shape next year.
«The RIS covers many topics, ranging from an aggravation of the know-your-client principle in execution only to the obligation to keep all advertisements reproducible over a five-year period. The marketing strategy must also be reported annually to the management board. Moreover, there will be rules regarding price objectification, which is basically the introduction of price regulation.
«These are not focal points that are sexy, but are topics that require preparation in 2024.»