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.
- Although we remain unfavorable on Merger Arbitrage strategies, we have been encouraged by a rebound in deal volumes and an improving regulatory environment. Our current guidance may transition to neutral as we see further evidence of an improving landscape.
- We continue to believe the opportunity set for Distressed Credit strategies will expand as over-leveraged companies adjust to rising debt service levels.
Private capital
- While Private Equity valuations have stabilized, we remain cautious as the exit environment remains challenged and the tighter lending environment continues to hamper larger buyout activity.
- While exit and initial public offerings remain tepid 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 remain tight and credit stress builds as rates remain “higher for longer”.
- While Private Real Estate has historically performed well over a full market cycle, we remain concerned with the impact of higher interest rates and changing supply and demand dynamics in select property types.