Core views
Macro + public markets
- Economy: The U.S. economy remains healthy as a strong labor market continues to power consumer spending. Businesses have turned optimistic on the outlook but note policy uncertainty has risen substantially. Tariffs threaten to weigh on growth and inject a new catalyst into the inflation picture.
- Interest rates: Long-term U.S. rates have settled into the mid-4% range. Markets have coalesced around one to two additional rate cuts this year, though an extended hold would surprise few. Bonds are facing the demise of a 40-year bull run, with investors coming to terms with lower Sharpe ratios and higher correlations to stocks.
- Equities: Performance of U.S. equities has remained positive in 2025 despite an unmistakable air of uneasiness. The Magnificent 7 have hit a patch of black ice as investors ponder their surging capital spending. Globally, equities offer stark trade-offs; growth at a reasonable price (GARP) has turned into growth or a reasonable price (GORP) in public markets.
Private markets
- Private equity: U.S. private equity buyouts continue to lead, with lower/core middle market strategies widening the return gap with larger funds as rates remain elevated. The core middle market is also leading the revival in deal activity, thanks to an expansive opportunity set of nearly 100,000 private companies. With better pricing and healthier earnings growth, middle market PE offers the purest form of GARP in markets today.
- Private credit: Private credit activity is set to shift from refinancings to new issue as M&A heats up. With the long-term Fed funds rate priced around 4%, forward returns for the asset class are attractive. Private credit defaults are low in the aggregate, though cracks have formed in the tech sector and 2021/2022 vintage deals.
- Real estate: Commercial real estate activity is ramping up, with Q4 the busiest quarter since 2022. Cap rates have moved upward but their spread to Treasuries remains historically tight, limiting price upside. In an income-dominant, fundamentally healthy environment, commercial real estate debt looks like the best way to play a rebound.
Portfolio construction
- The stock-bond correlation is at a 75-year high. The era of easy diversification has ended, delivering a new paradigm for portfolio construction.
- Over the past 20 years, allocating to private alternatives was transformative for portfolios. But as the space matures, the next two decades will demand more than broad exposure. To unlock the same edge, investors must dig deeper, targeting the right corners of the alternative landscape.
