Conference Presentation, Panel
Blow Wind, Blow: The Sails of Asset Management | Global Conference 2024
- Market Divergence: Global share prices have risen approximately 20% (S&P 500) over the past year, while the supply of public stocks has contracted by $120 billion year-to-date, the lowest figure since 1999.
- Private Market Scale: Private markets have grown 20% year-over-year for five consecutive years, reaching a total valuation of $13.1 trillion.
- Allocation Trends: Institutional investors currently allocate 37% of assets to private markets; among those surveyed, infrastructure and private credit are the primary areas for new capital, while real estate is the only sector facing hesitation.
- Private Equity Volatility: The traditional private equity playbook (low leverage + multiple expansion) is challenged; growth is shifting toward secondaries to provide liquidity and reduce J-curve risk.
- Secondary Market Dynamics: Secondaries activity slowed following the Ukraine war due to a lack of distress, but is resurging on the General Partner side as Limited Partners seek distributions; transaction volume remains constrained by a lack of price discovery in the US.
- Private Credit Expansion: Private credit has expanded massively to fill gaps left by banks, with $2.1 trillion in market size; it is increasingly used as a "steroid" for private equity via capital call lines and refinancing.
- Regulatory Shifts: Basel III capital requirements (full implementation starting July 2025) are expected to accelerate the secular shift of credit origination from banks (which provided 70% of credit in 1980) to private non-bank lenders (now providing 60%).
- Risk Warnings: Don Mullen warns of an "old school" default cycle emerging, driven by struggling lower-middle-income consumers facing rising property taxes and insurance costs; subprime auto loans and credit card debt are showing early signs of creep.
- Banking Partnerships: A symbiotic relationship is forming between banks and non-banks, where banks utilize their origination networks and relationships while non-banks provide capital, as seen in the PNC-TCW partnership.
- Competition Intensification: Large-cap private credit is becoming crowded and "covenant-lite," with spreads compressing by up to 300 basis points; value is increasingly found in the middle market and international sectors (Europe, Asia) where competition is lower.
- Real Estate – Office Sector: The office sector is facing structural decline due to hybrid work models; "B and C class" buildings in poor locations are at high risk of becoming obsolete, while "A class" assets remain resilient.
- Real Estate – Residential Demand: Single-family rentals are viewed as a massive, fragmented asset class hidden in plain sight; high retention by Baby Boomers (staying in homes until age 80) is exacerbating the shortage for Millennials.
- Real Estate – Regional Growth: Dallas and North Texas are identified as high-growth markets due to corporate relocations driven by cost-of-living factors and workforce housing availability, with the population expected to grow from 8.1 million to 12 million by 2045.
- Infrastructure Priorities: Infrastructure is identified as a top growth sector, specifically logistics and data centers, driven by supply chain re-shoring, de-globalization themes, and the need for private capital to fund government infrastructure projects.
- Future Allocation Consensus: The panel's top three future bets for capital allocation are: (1) Global/Industrial Infrastructure (including data centers), (2) Private Credit (with a focus on mid-market and non-QM residential), and (3) Real Estate (specifically multifamily and single-family rental).
- Strategic Pivot to Value Creation: Private equity managers are pivoting from financial engineering to operational "value creation," requiring active portfolio management to grow EBITDA organically as cheap leverage disappears.
- Sovereign and Insurance Shifts: Governments and insurers are increasingly positioned as the new "lenders of last resort," taking on credit risk previously held by banks due to more favorable asset-liability matching and regulatory arbitrage.