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Well, folks, it’s been quite a month, hasn’t it? B-Boys and B-Girls in the Olympics. Major changes on the campaign trail—fingers crossed that we’re not just rearranging the deck chairs. And, like many others, we had CNBC running in the background most of the time. But unlike most, we didn’t let the big red down arrow keep us up at night.
One of the more level-headed comments I read last week was on LinkedIn, “Investing in equities is for the long term, and volatility is a feature, not a bug.”
Look, I’m not here to tell anyone how to live their life. But if you’re losing sleep over every market hiccup, you might want to rethink your approach. That’s the beauty of focusing on long-term investments in diversifying, uncorrelated assets.
It’s the essence of Third Wire’s mission, and it’s why we chose the name. Dive deeper into what we’re about here.
Because, in investing, boring is beautiful.
Best,
Dan
Alternative Talking Points
We review the latest monthly reports and industry analyses across the private markets, boiling them down into a few easily digestible points to share with your clients. Contact us if you’d like more depth.
Hedge Funds: Positive performance in July amid mounting recession fears and market volatility.
➕ The HFRI Fund Weighted Composite Index (FWC) advanced +0.8% in July, with Event-Driven strategies leading performance (+2.5%) and Equity Hedge funds also gaining (+1.35%).
➕ Macro strategies faced challenges, declining -1.0% for the third consecutive month, while fixed income-based strategies showed resilience (+0.8%).
➕ Performance dispersion widened significantly, with the top decile of funds gaining +8.0% and the bottom decile losing -5.4%.
➕ The HFR Cryptocurrency Index continued its strong performance, surging +5.4% in July and bringing its YTD return to +32.1%.
➕ Approximately two-thirds of hedge funds produced positive performance in July, navigating through increasing recession fears and market volatility.
Sources: HFR
Private Equity: Cautious optimism remains amid improving marketing conditions for PE so far in 2024.
➕ Preliminary data for Q1 2024 shows positive quarterly performance, suggesting continued momentum from late 2023.
➕ Exit activity increased year-over-year through H1 2024, potentially driving performance improvements as managers realize returns on their best investments.
➕ The slight uptick in exit activity indicates a possible thawing of the environment, which could be a positive sign for future returns.
➕ While showing improvement, current performance still trails historical averages, reflecting ongoing market challenges.
Sources: Pitchbook
Private Credit: Resilient performance amid market volatility, with expectations of increased activity as rate cuts loom.
➕ Leveraged markets quickly rebounded after equity-led volatility, maintaining the year’s secondary rally despite concerns about rates, consumer confidence, and technological changes.
➕ Private credit demonstrated stronger execution amid market volatility, with deals pulled from the syndicated market, highlighting private credit’s stability.
➕ Barings BDC reported no new non-accruals, with non-accruals at only 0.3% of the total portfolio. Strong loan documentation is emphasized, especially in midsized borrowers.
➕ Market dynamics indicate a potential rate-cut cycle on the horizon, likely increasing sponsor-to-sponsor LBO activity, impacting private credit strategies.
➕ Private debt outperformed many strategies in 2023, with mezzanine funds leading the pack, driven by strong returns from floating-rate loans. However, future returns could be impacted by the pace of rate cuts.
Sources: Pitchbook
Commercial Real Estate: Navigating challenges, embracing change, and finding opportunities.
➕ Real-estate stocks are showing signs of recovery, with commercial property prices potentially nearing a bottom, according to global real-estate firm AEW.
➕ Interest Rate Impact: High interest rates continue to affect commercial real estate, increasing borrowing costs and impacting property valuations. This environment is leading to cautious investment strategies and reevaluation of financing options.
➕ Office Space Dynamics: Office vacancy rates remain high, with companies adapting to remote and hybrid work models. Demand for flexible office spaces and co-working environments is on the rise as businesses reassess their space needs.
➕ Sector Performance: Multifamily and retail sectors continue to show resilience with strong demand, while the industrial sector is experiencing a slowdown due to shifts in consumer spending. The office sector faces ongoing challenges with high vacancy rates.
➕ Sustainability and Technology: There is a growing emphasis on sustainable and green buildings, driven by tenant demand for environmentally friendly spaces. The adoption of smart building technologies is enhancing operational efficiency and attracting tech-savvy tenants.
➕ Investment Opportunities: Despite challenges, opportunities exist in sectors like multifamily, industrial, and digital infrastructure. Investors are focusing on properties with strong fundamentals and leveraging innovative solutions to create value.
Sources: MarketWatch, NAR
Worth your time
Our monthly recommendation of books, articles, research, and announcements we found interesting, important, or just plain entertaining enough to share. Sometimes we’ll have a lot. Other times, not so much. The objective is to share things that might be useful or interesting for your clients, not filler.
➕ UBS Global Wealth Report for 2024: UBS. It was published on July 10, 2024. Want to know where the wealth is? Fun fact: $83.5 trillion is anticipated to be passed to beneficiaries in the next 20 to 25 years. Of this, $9 trillion will be transferred between spouses, mainly in the Americas, with women likely to be significant beneficiaries due to life expectancy and age differences within couples.
➕ Why Private Equity Is Going After Retail Investors: Institutional Investor. For the TLNGR (Too Long Not Gonna Read) crowd, this is essentially the same story we’ve been hollering about since we started writing these. Not all, but quite a few, don’t have your client’s best interest at heart. High fees, questionable performance, imaginary liquidity. But your clients have all the money… so, um, that’s why they’re going after them. And again, people, we don’t call individual investors ‘Retail’, even if the institutions do.
➕ How private equity tangled banks in a web of debt: Financial Times. This is a cool scrolling visual story. Very digestible. Financial Jenga with complex layers of leverage, anyone? If this tower topples—we’re all in for a wild ride.
➕ Private Equity Gets Creative to Buy Time for More Gains. Clients Say Pay Me Now: Bloomberg. From Financial Jenga to Kick-the-Can. Apparently, it’s all fun and games with these PE ‘bigs’ 🙂 How about a game called “Who would like to remain a PE Billionaire?” Can they get a lifeline? Fortunately, some investors are pushing back and saying no. Overall, only about one-third of the proposed continuation funds are being successfully implemented.
➕ LinkedIn’s chief economist: Gen AI will impact ‘solidly middle-class’ workers: MIT Sloan. Look, we didn’t look up who LinkedIn’s chief economist is or validate this bit of research. All we’re saying is, ignore generative AI at your own peril.
Disclosure:
This newsletter is for informational purposes only and does not constitute investment advice. All investments, including those in equity, debt, and alternative assets, carry certain risks, notably potential liquidity and transparency issues associated with many private investments. These risks should be considered in the context of an individual investor’s objectives and risk tolerance.
The views expressed are those of Third Wire as of the date of publication and are subject to change. The information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed.
Past performance is not indicative of future results. Investors are advised to consult with qualified financial, legal, or tax advisors before making any investment decisions. Third Wire does not accept liability for any loss or damage arising from the use of this newsletter.
By subscribing to this newsletter, you agree and acknowledge that Third Wire is not liable for any decisions made based on the information provided herein.
