Alternative investments highlights

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.
  • Nondirectional strategies such as Convertible Arbitrage, Merger Arbitrage, and even Long/Short Credit can provide diversification.
  • Corporate deal activity continues to track to historical levels in 2021, fueled by large amounts of “dry powder” in both corporate coffers and Private Equity portfolios.

Private Capital

  • Private Equity valuations generally lag the public market by six to nine months. Therefore, we anticipate a reduction in internal rates of return (IRR) and multiples over the next several quarters, should the private market catch up to public valuations as we expect.
  • While exit and initial public offering (IPO) activity should slow heading into a recession, we also recognize a much more attractive entry point for Private Equity, especially Venture Capital and Growth Equity, given the decline in valuations.
  • Private Debt strategies focused on distressed and special situations are becoming more interesting as lending conditions tighten and credit stress builds. We also anticipate opportunities for Direct Lending strategies.
  • 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.

Alternative investments, such as hedge funds and private equity/private debt funds, are not appropriate for all investors and are only open to accredited or qualified investors within the meaning of the U.S. securities laws. They are speculative and involve a high degree of risk that is appropriate only for those investors who have the financial sophistication and expertise to evaluate the merits and risks of an investment in a fund and for which the fund does not represent a complete investment program. While investors may potentially benefit from the ability of alternative investments to potentially improve the risk/reward profiles of their portfolios, the investments themselves can carry significant risks. There may be no secondary market for alternative investment interests, and transferability may be limited or even prohibited. Hedge fund strategies, such as Equity Hedge, Event Driven, Macro, and Relative Value, may expose investors to risks such as short selling, leverage, counterparty, liquidity, volatility, the use of derivative instruments, and other significant risks.