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.
• Given the likely economic recession later this year, we expect Merger Arbitrage may 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 to 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 offering is 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.

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.