Investing Trends Beyond the Public Markets
Summary
TLDRThe transcript discusses the shift in investment strategies towards alternative investments, such as private equity and real estate, in response to a more accommodating environment for investment post-peak rates. The conversation highlights the importance of CPI and labor market data in influencing investment decisions and the preference for municipal bonds over Treasuries. It also touches on the appeal of ex-U.S. investments, particularly in Europe and emerging markets, and the challenges of macro risk associated with China. The discussion concludes with insights on private markets, noting opportunities in real estate and private equity due to the current valuations and lack of large capital investors.
Takeaways
- 📉 The speaker's firm has seen a shift from traditional investments to alternative investments over the past six years, focusing on both income and growth opportunities.
- 💹 Investors are looking at private equity, real estate, and private credit as part of the alternative investment trend.
- 🚶♂️ The current environment is described as accommodative for investment, but there's a waiting game due to the peak in rates that has not yet passed.
- 📈 The expectation for the full year is a range of 2 to 4, but data points such as CPI and labor market conditions could influence this towards the lower end.
- 🔄 Volatility in monthly CPI readings is noted, but there's a longer-term trend of decreasing inflation.
- 🏢 The labor market's resilience is highlighted, but there's concern that if rates remain high, it could lead to a recession despite the Fed's efforts.
- 🛠️ The speaker's colleague is open to equity risk, while the speaker himself is considering the two-year treasury at 4.69%.
- 🏦 A preference for municipals over Treasuries is expressed for taxable investors, with a tactical allocation to shorter treasuries due to their current richness.
- 🌍 Ex-U.S. investing is seen as exciting, with potential opportunities in Europe and emerging markets, but it requires a long-term investment horizon and acceptance of macro risks.
- 🤝 Clients are expressing a desire for exposure to alternatives like hedge funds, private equity, and private credit, and are looking to move away from public market volatility.
- 🏗️ Real estate is highlighted as an area of opportunity within private markets, with significant deal flow expected from funds needing to sell assets.
Q & A
How long has it been since the group had 60 to 40 people?
-It has been probably six years since the group had 60 to 40 people.
What type of investments have a significant portion of the group moved into?
-A significant portion of the group has moved into alternative investments, including both income and growth alternative sides.
What are some examples of alternative investments mentioned in the script?
-Examples of alternative investments mentioned include private equity, real estate, and private credit.
What is the current waiting game in the investment environment?
-The current waiting game is for the peak in rates to pass, which has not happened yet.
What are the two key data points that could influence the expectations for the full year closer to two?
-The two key data points are CPI (Consumer Price Index) and the labor market.
What is the current stance on the two-year treasury at 4.69%?
-There's nothing wrong with a two-year treasury at 4.69% as long as you don't have anything to do in two years.
Why are municipals favored over Treasuries for taxable investors?
-Municipals are favored for taxable investors because they offer a more attractive return compared to Treasuries, especially when short munis are rich in value.
What is the perspective on ex-U.S. investing?
-Ex-U.S. investing is viewed with excitement, particularly in Europe and certain parts of emerging markets, but it involves taking some macro risk.
What challenges do Bernstein investors face with large-cap U.S. investments?
-Bernstein investors face the challenge of finding opportunities in large-cap U.S. investments, such as Mega-cap, and balancing them with the next potential growth areas like Europe or emerging markets.
What is the current trend in the jobs market?
-The jobs market has been impressive throughout this cycle, but there is a concern that if there is a disruption, it could be nerve-racking and lead to changes in hiring intentions and even reductions in headcount.
How are investors responding to public market volatility?
-Investors are looking to move away from public market volatility, both in equity and fixed income, by investing more heavily in private equity, primaries, secondaries, and real estate.
What opportunities are seen in the private market given the current conditions?
-Opportunities in the private market include real estate funds needing to sell assets, off-market secondary transactions, and private equity and venture capital where valuations have come down due to the lack of big capital investors.
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