![]() Original report - Can alternatives help navigate macro uncertainty?, 12 June 2023. Main contributors - Matthew Carter, Alison ParumsĬontent is a product of the Chief Investment Office (CIO). With uncertainty and macro risks likely to stay elevated, we recommend investors look to alternatives to bolster and diversify portfolio returns. Private lenders’ greater control over setting underwriting standards can help reduce default risk. Compared to most fixed income strategies, private debt investors benefit from variable interest rates, a high level of control, and lower volatility.Between 20, global private equity returned 13.8%annually, versus 7.1% in publicly traded global equities. Private market investments can provide attractive absolute risk-adjusted returns over the long term.Investors need to be willing and able to lock up capital for longer. Both hedge funds and private markets come with certain drawbacks, including the risk of an illiquid market.Private equity offers exposure to fast-growing and innovative businesses, while value-oriented buyout strategies and secondaries should continue to gain traction.Private debt can help long-term goals amid higher yields, strict underwriting standards, and an expanding market as banks tighten credit.Private infrastructure and real estate exhibit long-term “inflation-hedging” characteristics.Private market investments can help hedge inflation, manage rates uncertainty, and grow long-term wealth. We like strategies including macro, low net equity long/short, multi-strategy, sustainable investment, and credit long/short.Over the past 25 years, hedge funds (HFRI Fund Weighted Index) made net-of-fees returns of 6–7%, in line with global equities (MSCI World TR) but with half the volatility.Hedge funds have historically performed well in a high rate environment, with an 8.5% annual return between 20.Hedge funds can generate alpha and help boost returns in a risk-adjusted manner. Long-term trends around demographics, deglobalization, and decarbonization may require investors to be more selective.Uncertainty around the path for rates, growth, and profits has led to range-bound equity markets and pockets of volatility.Developed market inflation is off its highs, but core rates remain above central bank targets.Uncertainty and macro risks are likely to stay elevated. Meanwhile, private market secondaries and distressed strategies could be well-positioned to buy assets at attractive valuations.
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