As the economy experiences a slowdown, private equity, hedge fund and real estate managers can explore a broad array of potential opportunities.
- There are many opportunities for alternative investment managers to take advantage of market stress, capital dislocations and asset repricings. Limitations on bank balance sheets are also changing sources of capital for transactions and major capital expenditures.
- Active management becomes a differentiator in turbulent times. Managers must tap operational resources, rather than leverage, and the high dispersion in markets provides an environment for hedge funds to demonstrate their stock and bond picking prowess.
- These conditions also provide a window for liquidity providers such as hedge funds, private credit funds and secondary private equity funds to buy assets at unusually attractive prices.
- Real estate managers must also be selective in today’s environment. The attractiveness of real estate is highly differentiated by sector and geography, with continued strength in industrial and multifamily in the US relative to office. Yet the office sector has pockets of strength in Asia.
- Despite being somewhat contradictory, recent employment reports make it clear labor markets are still outperforming the economy. When this changes, so will the outlook for US monetary policy. Setbacks in markets today – particularly for assets that have deeply underperformed the narrow leadership of 2023 – are likely to represent even stronger opportunities.