Core views
Macro + public markets
- The U.S. economy continues to power ahead, led by a resilient consumer and robust government spending. We expect growth to notch lower beginning in Q4 as the labor market comes more into balance.
- Interest rates across the curve have rebounded since the Fed’s inaugural cut in September. A buoyant economy and expectations for expansionary policies from a Trump administration have driven a rethink of the rate cut path. We see policy uncertainty remaining elevated, driving rate volatility.
- Public U.S. equities are looking to finish a second straight year of 25%+ gains, which would be the first such occurrence since the late 1990s. Elevated concentration, earnings expectations and valuations give us pause.
Private markets
- The private equity (PE) backlog caused by the mergers and acquisitions (M&A) slowdown is beginning to thaw. Large cap funds have much wood to chop to generate liquidity and deploy significant dry powder into new investments. Conversely, middle market PE is better-positioned given its balanced fundraising to deal flow and ability to exit to overcapitalized large cap funds. Combined, these factors drive attractive pricing and investor liquidity in middle market PE.
- Private credit origination volume has picked up as the M&A flywheel begins to turn. Yields remain well above those available in public markets, and real yields should be highly attractive even as the Fed cuts rates.
- The commercial real estate (CRE) correction is in its concluding stage, with transaction and lending activity set to pick up. However, the interest rate environment will likely act as a limiting factor for increases in property values.
Portfolio construction
- Stock-bond correlations are elevated and appear to have entered a new regime, creating challenges for portfolio construction.
- The addition of private alternatives into a traditional portfolio over the past 20 years would have been significantly accretive. The growing availability of a broad set of alternatives allow investors to tailor allocations to meet portfolio goals.
