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Welcome to Third Wire’s inaugural newsletter! Who has the time to read another newsletter, you ask? Well, it turns out quite a few people—newsletter subscriptions were up by over 300% from last year, or so I’m told. 😉
Why did we name our newsletter ‘Counterweight’?
The counterweight of an elevator doesn’t slow things down or directly increase its safety. But, having it in place and properly scaled in proportion to the elevator itself does lower the amount of work the motor has to do and puts less strain on the wires, creating reliability, repeatability, and longevity. Getting people to their destination in the ideal way—uneventfully. That’s how we think about the role of alternative investments in client portfolios.
We are private market experts. We care about helping wealth managers learn about alternative investments and how to access them for their clients. And, like most people, we love the occasional Wu-Tang Financial meme. That’s what you’re signing up for here.
My intent each month is to keep this short, scannable, and, above everything else, useful. Please let us know if we’re failing or missing something you’d like us to cover in future newsletters.
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: Mixed Overall Performance
➕ Macro strategies led hedge fund gains in October, with the HFRI Macro (Asset Weighted) Index advancing +0.7%.
➕ Large multi-strategy hedge funds reported positive performance.
➕ Systematic long-short funds outperformed discretionary long-short funds.
➕ Equity hedge funds, particularly those with technology and energy exposures, faced declines.
➕ Event-driven strategies encountered challenges in October, especially in shareholder activist and distressed sub-strategies.
Private Equity: Rising Bullish Sentiment
➕ Expectations for rising acquisition activity were growing, partly due to easing fears of a deep recession that dominated earlier discussions.
➕ There was a broader array of deal types in private equity, moving beyond a narrow focus on take-privates and add-on transactions. This indicates a more dynamic and opportunistic market environment.
➕ Significant investment was directed towards the technology and healthcare sectors, reflecting their perceived long-term growth potential and resilience against macroeconomic headwinds.
Private Credit: Environment suggests a healthy market for credit issuance and lending activities
➕ The interest rate outlook has become slightly clearer as of October 2023, although if the Fed lowers rates in 2024, this will compress lenders’ margins and reduce borrowing costs. This might increase competition and lead to more favorable terms for borrowers while impacting lenders’ profitability.
➕ A modest pickup in deal activity and fewer expected surprises as higher interest rates become a new norm.
➕ Private credit is becoming a more permanent and significant allocation for investors, indicating healthy demand in this market.
➕ Senior Secured Direct Lending emerged as a key allocation within private credit, offering attractive income prospects.
Commercial Real Estate: Adapting to Higher Interest Rates
➕ The value of commercial real estate (CRE) has been declining, with an overall drop of 15% in property values and a 25% decrease in office building values over the past 12 months, as per Green Street’s Commercial Property Price Index.
➕ Certain sectors in commercial real estate, like data centers, experienced exceptionally strong demand and constrained supply.
➕ Rising rates led to a significant decline in new construction starts in real estate.
➕ Growing pressure in the CRE space from maturing debt and soaring borrowing costs is leading a number of large institutional investors to default on properties.
Worth Your Time
Our monthly recommendation of books, articles, research, and announcements we find 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 are useful, not filler.
➕ Due Diligence 101: The Front Line of Alternative Investment Success: Third Wire Insights. Our latest blog post. It’s also our first in the newly launched ‘Insights’ page! One article so far, with more in the pipeline.
➕ Allocators Increasingly Shying Away from Risk, Survey Says: Chief Investment Officer. What are institutional investors doing? De-risking.
➕ The (In)Accuracy of Market Forecasts: Wealthmanagement. Professional and amateur forecasters alike are complete trash at predicting movements in the market. As anyone who’s been in this business for more than a week will tell you—it’s time in the market, not timing the market.
➕ The Super-Rich Look to Boost Allocations to Alternative Investments: Barron’s Penta. We’re guessing most of you don’t need to be sold on the importance of diversification and adding alts to client portfolios; UBS is now recommending ~30% target allocation to private market assets to some of their UHNW clients.
➕ Group RMC Welcomes Andrew Marsh to Advisory Board: Digital Journal. Again, Congrats!
➕ Why finance is deploying natural language processing: MIT Sloan. This topic is fast-moving and worth keeping an eye on on multiple fronts.
Disclosure:
This newsletter is for informational purposes only and does not constitute financial, investment, legal, or other professional advice. The information, opinions, and forecasts contained herein are current as of the date of this publication and are subject to change without notice. The information presented in this newsletter has been obtained from sources believed to be reliable, but its accuracy, completeness, and relevance to your personal situation cannot be guaranteed.
Investments and strategies mentioned may not be suitable for all readers and may have different implications for different people. We highly recommend that readers seek advice from qualified professionals before making any investment decisions. Past performance is not indicative of future results, and no representation or warranty is made regarding the accuracy or completeness of the information contained herein.
Third Wire Asset Management, LLC (‘Third Wire’) does not accept liability for any loss or damage arising from the use of this newsletter. By reading this newsletter, you acknowledge and agree that Third Wire is not responsible for decisions made based on the information provided herein.
