Hello, I’m Michael, and welcome to AGM – your go-to spot for everything related to private markets. It’s thrilling to introduce you to my weekly newsletter, AGM Alts Weekly. Every Sunday, we explore the latest updates, trends, and insights into the dynamic world of private markets. In this newsletter, you’ll find an assortment of news articles, thoughtful commentary, an index for publicly traded alternative asset managers, job listings within private market firms, and some intriguing podcasts and articles from Alt Goes Mainstream.
Stay tuned with us to grasp the current happenings in private markets. This knowledge is key for you and your firm to stay informed and adept in maneuvering through the constantly evolving landscape.
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Greetings from Washington, DC. This past week, I had an enriching conversation with John Sweeney, CEO of Brookfield Oaktree Wealth Solutions, on our podcast. During our discussion, John brought up insights from Howard Marks’ latest memo, “On Bubble Watch.” A standout lesson from Marks’ memo emphasized the significance of purchase prices in investments. While a company or asset might be high-caliber, it’s crucial to gauge whether it’s overpriced.
Listening to John’s insights and reading Marks’ memo offered key reminders about investment decisions, especially when parts of the market seem speculative or detached from reality. The current investment landscape is undeniably different from what it used to be.
Marc Rowan, Apollo CEO, recently shed light on some worrying trends in public markets during the Norges Bank Investment Management Conference. Increased indexing and correlation in markets, inflated multiples, and rising interest rates were some of the concerning points he highlighted. Marks also noted a similar scenario, citing research from Michael Cembalest of J.P. Morgan Asset Management. Cembalest’s findings revealed that the market capitalization of the S&P 500’s largest components has doubled over five years, triggering ominous market signals.
History might not repeat but often rhymes. The highest share of leading stocks was 22% in 2000 during the TMT bubble’s peak. Marks and various industry leaders predict muted U.S. equity returns over the coming decade. Goldman Sachs’ forecasts align, projecting a meager 3% annual return for U.S. equities over the next ten years.
Jay Serpe of J.P. Morgan Private Bank recently outlined alternative asset class returns expected over the next 10-15 years, suggesting a brighter outlook for private market strategies. U.S. Value-Added Real Estate, driven by supply-demand imbalances, is among the projected top-performers. J.P. Morgan believes private equity, venture capital, and direct lending strategies continue to offer promising returns due to advantageous entry-level multiples.
The June 2024 paper by Tyler Jayroe of J.P. Morgan Private Equity Group illustrated how middle-market funds achieve higher returns due to lower entry-price multiples. This data underpins the valuation drop in growth equity since 2021, portraying a sharper picture of the market differences across varying enterprise values.
Navigating the current investment environment highlights the importance of identifying niche market opportunities, a point underscored in Blue Owl’s 2025 Market Outlook. Direct lending is one of these promising areas for high risk-adjusted returns. Marathon’s Bruce Richards shared insights on how private debt has recently outperformed other private market strategies.
Balancing risk and return remains crucial, particularly when deciding between public and private market allocations. Blue Owl’s data indicating yield premiums in private credit relative to broader syndicated loans is noteworthy. They argue significant incumbency positions among scaled pure-play lenders can seize opportunities in M&A, enhancing performance.
Private credit’s appeal is gaining traction, with large firms like Databricks securing substantial financing through private credit markets. Blue Owl is strategically positioned to capitalize on this trend, focusing on upper middle market lending, attributing higher deal quality and disciplined pricing to less competition. The data supports this portrayal.
Drivers behind private credit’s appeal are its capability to generate double-digit IRRs, as echoed by Bruce Richards. Compounded returns over time in evergreen structures significantly benefit investors, an insight supported by KKR’s reports. These observations emphasize the investment prospects in data centers, meeting the growing demand from tech giants.
In sum, sticking to fundamentals while avoiding irrational market behaviors is a prudent start. Investors, especially newer ones, might grapple with the allure of speculative returns, but advisors can play a pivotal role in guiding them towards sensible, steady investments.
Nuveen’s study captures the generational shift and rising interest in alternative assets. This opens new avenues for advisors to engage clients by cultivating an understanding of private markets. Aligning with younger investors’ preferences and expectations could redefine long-term strategies and growth paths.
From Blue Owl’s expansive insights to JPMorgan’s compelling projections, the opportunities private markets wield are manifold. As we navigate through market shifts, reliable investments in underlying infrastructure, like data centers, underscore the vital role of private markets.
Moreover, with the consolidation trends among major asset managers illustrated through recent transactions like that of Apollo and Argo, it’s clear this is a space to watch. Increasing alignment among LPs suggests a lean towards comprehensive strategies over isolated external relationships, which changes the dynamics for wealth managers.
For those intrigued by this evolving sector, diving into the wealth of offerings — from secondaries to evergreen funds and more — can provide diversified, robust portfolios. This trend of mainstreaming alternatives is truly an exciting juncture for seasoned and emerging investors alike.
Engage with Alt Goes Mainstream for a deeper dive, or connect directly to explore possibilities within the dynamic private markets arena. Share your insights and ideas; we’re eager to expand conversations and connections amidst this vibrant community of experts. Keep an eye on our informative podcasts and articles as we explore today’s private market trends and prospects.
Interview with Karl Heckenberg of Constellation Wealth Capital
