Investors need to be keenly aware of the impact that ESG strategies are having on this sector, analysts said.
"Private infrastructure investing has reached a tipping point," the report stated. "The integration of environmental, social and governance (ESG) standards is now mainstream, a forward-looking matter of strategic positioning rather than the backward-looking compliance consideration of the past."
In the area of transportation, the analysts said the best opportunities will be in what it calls the "core-plus transport" sector, the segment of the industry comprising large dry bulk carriers, ultra-large container ships, tankers, liquefied natural gas carriers, very large gas carriers, aircraft and railcars. Long-term leases and healthy balance sheets in this area help mitigate risk, the report said.
Private Credit
"Pockets of opportunity exist," the analysts said. "Parts of the corporate credit market appear stretched, and this requires a cautious approach. Still, not all areas of private debt are overheating. Attractive loan origination opportunities still exist, with examples including real estate mezzanine debt, U.S. residential mortgages and corporate loans."
Distressed and special situations private credit strategies are also well positioned for an economic downturn, the report said.
Private Equity
Investors have been turning to private equity for nearly a decade in search of alternatives to a traditional market that has offered only modest returns, the JPMorgan analysts said. This buildup in private equity capital, however, has made it harder to invest the funds effectively.
"Demand outpacing supply generally means higher valuations, greater use of leverage and/or lower potential future internal rates of return," the report said.
That means investors have to be particularly discriminating in this sector.