Alternative opportunities quarterly update

Executive summary

Portfolio risk: We remain neutral on how we’re allocating risk within our alternatives portfolio due to elevated downside growth risks, high equity valuations, and benign capital markets activity. In general, we’re more defensive, favoring private debt and hedged strategies versus private equity. 

Private credit:

• We remain constructive on the backdrop for direct lending in 2025, given macroeconomic and anticipated deployment tailwinds. 
• Real estate credit remains our preferred way of accessing real estate markets, with the anticipation of a bottoming of valuations coming in 2025.

Private equity: PE exit activity appears to be improving this year from cycle lows on the backdrop of an improved financing environment with lower interest rates and less regulatory uncertainty. Deal activity is also anticipated to improve, given lower funding rates and a more robust lending environment. Growth strategies are still favored.

Real assets: Key to our outlook for 2025 is the fact that global interest rates have started to decline, increasing confidence in real estate markets and enabling a recovery in transaction volumes. Private market values have continued to fall while public market prices have started to recover, leading us to anticipate a recovery of private property values. 

Hedge funds:

• Spreads within event-driven strategies remain high despite limited capital market activity from mergers and acquisitions as private equity remains sidelined.
• Trend-following strategies have historically benefited from a tailwind during periods of high and declining rates.