Due to their unique characteristics, we are taking a differentiated look at liquid and illiquid alternative investments.
With strong economic growth in the U.S. and accommodative monetary policy in Europe and Japan, equity markets should post high single-digit returns. Managers are finding a balanced opportunity set in the United States and alpha -adding opportunities in Europe.
Macro managers have found opportunities in fixed income and exchange markets during 2014. The commodity trading advisor (CTA) strategies' recent recovery has been driven by trends in longer-term rates and within exchange markets.
Long/short credit strategies continue to benefit from improved fundamental conditions, even though spreads are likely to remain unchanged. Upside against call risk is limited, making selectivity key.
Companies continue to seek to acquire earnings, vertically integrate or geographically diversify. Increased mergers and acquisitions activity has been driven by, among others, healthy corporate balance sheets and access to cheap credit.
Private equity returns remain solid year to date, with appreciation in unrealized values and attractive cash returns driven by strong initial public offering (IPO) and M&A activity. With rates remaining low and exit activity still high, robust conditions continue.
Initial yields on property remain attractive globally relative to sovereign yields. To mitigate the risk of rising rates, we recommend underweighting long-duration leased assets and overweighting pro-cyclical property sectors.
Healthy investor demand is being sustained by stable cash flows and perceived growth prospects. The potential for rising interest rates presents a challenge for slower-growth utility companies but energy companies are experiencing secular growth.
There are interesting opportunities for longer-term strategies particularly within activism, certain elements of structured credit, insurance-linked assets, secondaries, regulatory capital arbitrage and direct lending.