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By most measures, Q1 has been bonkers–and yes, that’s the technical term for it. We all read or watch the news, so I don’t think I need to rehash the highlights (or lowlights, as the case may be). But one theme that keeps surfacing—whether in markets, policy, or the way people work—is the accelerating impact of AI.
Last month, we introduced a new section of talking points to this newsletter focused on AI developments, but with everything happening around the launch of the Third Wire / Morningstar PitchBook US Buyout Replication Index Fund (USBRIF), we didn’t properly point it out.
If recent news cycles about DeepSeek and Manus have taught us anything, it’s that the next AI breakthrough is always right around the corner—and your clients will expect you to drop everything to explain it to them.
Full disclosure: I am not, and do not claim to be, an AI expert. Fortunately, I know some people who are. Through our CMO David Beaver (who also works with them), I got connected with a company called Pure Math AI and joined their Advisory Board late last year. If you have questions about AI or a problem you think AI could help solve, just reach out and ask them—Pure Math AI.
Think data science and deep technical expertise in enterprise product development and engineering—combined with 20+ years in alternative investments—ready to help you apply AI to highly specific industry challenges. End commercial.
Best,
Dan
P.S. The index is the exclusive property of Morningstar, Inc., which does not sponsor, endorse, or promote this fund.
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 bag as trade and tariff volatility rattles markets.
➕ Relative Value Arbitrage remains a stronghold, posting its 16th consecutive monthly gain. The HFRI Relative Value (Total) Index added +0.8%, led by Convertible Arbitrage (+3.4%) and Volatility strategies (+1.1%).
➕ Event Driven strategies held steady despite market turbulence. The HFRI Event Driven (Total) Index gained +0.3%, supported by Multi-Strategy approaches (+1.4%) and Credit Arbitrage (+1.0%).
➕ Equity Hedge funds struggled as technology stocks took a beating. The HFRI Equity Hedge (Total) Index declined -0.66%, with steep losses in Tech-focused funds (-3.9%). However, Multi-Strategy funds within this category bucked the trend, gaining +3.1%.
➕ Macro strategies faltered as interest rates and commodities dropped. The HFRI Macro (Total) Index fell -1.5%, weighed down by Systematic Diversified strategies (-2.8%) and Commodity-focused strategies (-2.4%). Active Trading strategies offered a rare bright spot, adding +2.0%.
➕ Cryptocurrency hedge funds suffered a major drawdown, with the HFR Cryptocurrency Index plunging -16.8% as Bitcoin and other digital assets experienced heightened volatility.
➕ Hedge fund performance dispersion widened, with top-performing funds gaining +6.5%, while bottom-decile performers dropped -8.3%, emphasizing the importance of manager selection.
Private Equity: Market in transition as smaller deals gain traction, but fundraising, and exit struggles persist.
➕ Deal activity remains sluggish, with U.S. PE transactions through February at their lowest levels in five years. However, smaller deals (under $500 million) are gaining momentum, reversing the past two years’ trend of large-cap dominance. Source: Ropes & Gray
➕ Bain & Company suggests dealmaking is improving as general partners push to complete transactions, though macro uncertainty remains a key barrier to sustained recovery. Source: Bain & Company
➕ Fundraising conditions remain difficult, with only 81 funds closing through February, extending the multi-year decline. LPs continue to favor large, established firms, leaving smaller managers struggling to secure commitments. Source: Ropes & Gray
➕ Sectoral trends highlight shifting capital flows:
- Sports franchises are becoming a target, with over half of MLB teams now tied to private equity capital. Source: The New York Times
- Healthcare remains a hot spot, with private equity firms dominating autism therapy M&A activity. Source: PESTakeholder
Private Credit: Expansion continues while structural risks are piling up.
➕ Banks are outsourcing private credit deals. Deutsche Bank’s partnership with DWS gives DWS priority access to its private credit transactions—signaling banks’ struggle to compete under regulatory constraints. Source: Bloomberg
➕ Private credit yields hit a four-year high, with spreads 226 bps over B-rated loans—nearly double the historical average. Source: FSInvestments
➕ Regulatory scrutiny is heating up. The BIS warns that private credit’s growth is fueled by regulatory arbitrage, not efficiency. Sector concentration risks are rising. Source: BIS
➕ Investor focus is shifting. Allocations to specialty finance jumped to 18% as direct lending’s share fell to 50%—a sign of saturation or just yield-seeking? Source: With Intelligence
➕ Credit market dispersion is increasing. The gap between top-tier and lower-quality borrowers is widening. Selectivity and credit analysis matter more than ever. Source: Man Group
➕ Money is flowing in from individual investors as risks are rising. Many funds remain highly concentrated in a few sectors. Source: BIS
Commercial Real Estate: $500B in Commercial Real Estate Loans Are Coming Due—Who Can Refinance?
➕ CRE refinancing pressures are mounting. Loan maturities are heavily concentrated in office and multifamily, the two most vulnerable sectors. Source: abrdn
➕ Debt costs remain high. CRE loan rates are averaging 6.9%, making refinancing expensive—especially for owners who underwrote deals at 3–4% rates. Source: CRE Daily
➕ Multifamily supply cuts could drive rent growth. Construction starts are down 74% from 2021, setting up a potential rental squeeze in late 2025–2026. Source: abrdn
➕ Retail shows resilience, but not malls. Strip centers and lifestyle retail are holding up, while mall vacancies continue to increase. Source: Cohen & Co.
➕ CRE investors are back, but only for the right assets. Private equity firms are the most active buyers, but capital is flowing selectively toward logistics, multifamily, and specialized assets like data centers. Source: InvestNext
Artificial Intelligence: Reasoning, Edge Computing, and AI-Consulting Are Set to Reshape Industries
➕ Forget SaaS. Instead of renting access to platforms and data (think AdvisorPro, for example), firms are partnering with AI-focused consultants to build their own AI-powered tech stack—owning their data, customizing secure open-source models, and reducing dependency on third-party providers. Source: The New Stack
➕ Agentic AI is gaining momentum. Amazon AWS, Anthropic, and GitHub have all launched AI agents designed to automate tasks, improve coding, and integrate into business workflows. Source: Reuters
➕ Enterprise adoption is accelerating. 25% of companies plan to experiment with AI agents this year, with 50% expected by 2027—a shift toward AI that not only suggests but decides. Source: Fortune
➕ You’ve probably been hearing a lot about Manus, an AI firm based in China. We’ve been testing it. It’s pretty cool, but in our opinion, it’s not quite ready for prime time for everyday users. No matter what the videos floating around about Manus imply, AI isn’t quite at the point where you can say, “Computer, please build me a database of all family offices and their key decision-makers,” and it will actually create something useful. 🙂 Source: Pure Math AI
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.
➕ Private Equity Playbook via Public Equity Markets: Morningstar Indexes. A short piece of research from the folks at Morningstar and PitchBook based on their new index, the Morningstar PitchBook Buyout Replication Index.
➕ An Inconvenient Fact: Private Equity Returns & The Billionaire Factory: University of Oxford, Said Business School. A working paper that examines private equity returns and their impact on wealth distribution. If you ever needed more proof that private equity’s biggest winners today typically aren’t LPs but the folks running the show, Ludovic Phalippou lays it out in detail.
➕Why Ultra-Wealthy Investors Can, and Should, Invest Like an Institution: Callan Family Office. For all the firms pitching “access to alternatives” and the “institutional model” as reasons for HNW investors to pile into private markets, Callan Family Office explains that real institutional investing is about scale, cost efficiency, and flexibility. Institutional investors aren’t defined by what they invest in—they’re defined by how they invest. The ability to adapt, manage risk, and move nimbly in changing markets is what separates true institutional thinking from the “you-need-a-20%-allocation-private markets” sales pitch.
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.
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1. The Morningstar Indexes are the exclusive property of Morningstar, Inc. Morningstar, Inc., its affiliates and subsidiaries, its direct and indirect information providers, and any other third party involved in, or related to, compiling, computing, or creating any Morningstar Index (collectively, “Morningstar Parties”) do not guarantee the accuracy, completeness, and/or timeliness of the Morningstar Indexes or any data included therein and shall have no liability for any errors, omissions, or interruptions therein. None of the Morningstar Parties make any representation or warranty, express or implied, as to the results to be obtained from the use of the Morningstar Indexes or any data included therein.
The Fund seeks to replicate certain characteristics of private equity buyout strategies but may not achieve the same results. Past performance is not indicative of future results. Investments are subject to risk, including loss of principal. Investments in public equities may involve significant risks, including market volatility, economic uncertainty, and potential deviations from the Fund’s intended strategy. There is no guarantee that the Fund will achieve its investment objectives.
The Fund is a private offering and is not registered under the Investment Company Act of 1940 or the Securities Act of 1933. As such, it is not subject to the same regulatory requirements as registered investment vehicles. Fees and expenses associated with the Fund may impact overall performance. Investors should review the private placement memorandum for a detailed description of fees and costs.
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The Index uses advanced AI methodologies, including Long Short-Term Memory (LSTM) neural networks, to guide security selection and leverage adjustments. The effectiveness of these methodologies is not guaranteed and may be impacted by unforeseen factors or market conditions.
This document may contain forward-looking statements regarding the Fund’s strategy or expected performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially.
