Hedge funds
- Over a full market cycle, we believe hedge funds can help decrease risk and improve diversification.
- At this point in the cycle, we prefer strategies like Relative Value and Macro that can help reduce volatility by being less correlated to risky assets.
- Given the likely economic slowdown in early to mid 2024, we expect Merger Arbitrage may continue to struggle as deal activity slows, spreads widen, and lead times for deal closings become extended. Conversely, we believe the opportunity set for Distressed Credit strategies will expand as over-leveraged companies adjust to rising debt service levels.
Private capital
- Private Equity valuations generally lag the public market by six to nine months. Therefore, we anticipate a reduction in valuations over the next several quarters as private markets narrow the gap to public market prices.
- While exit and initial public offerings are slowing as the risks to economic growth rise, we also recognize that we may experience more attractive entry points for Private Equity as managers generally invest committed capital over a three-to-five-year time frame.
- Private Debt strategies focused on distressed and special situations are becoming more attractive as lending conditions tighten and credit stress builds.
- While Private Real Estate has historically performed well over a full market cycle, we are cognizant of slowing economic growth potentially offsetting the gains from higher inflation.