Conference Presentation, Panel
Institutional Investors: Staying the Course or Catching the Wave | Global Conference 2024
Milken InstituteChristopher Ailman, Amy Diamond, Allison Hill, Molly Murphy, Bei Saville, Liz Tulach
- AI is viewed as a lasting secular trend where investment decisions may require a very long time to materialize, though macro or geopolitical risks could temporarily overshadow fundamentals for extended periods.
- Sticky inflation and elevated real interest rates are expected to generate volatility, making alpha strategies more challenging and likely resulting in softer returns across asset classes in the near term.
- Portfolios are shifting toward increased volatility and optionality, with a reduction in liquid space to facilitate faster capital deployment into emerging opportunities.
- Specific white space is being targeted in asset-backed lending where capital scarcity allows for better terms and increased capacity, while safer fixed income assets continue to offer attractive conservative credit yields.
- The secondary market is anticipated to ramp up by the end of the year and potentially accelerate further, driven by slowing fundraising cycles and manager efforts to address portfolio holdings, particularly in private equity, real estate, and energy.
- Unfunded commitments are expected to be drawn down over the coming years, introducing new vintages and prices for new fund commitments.
- Core real estate funds are currently unable to distribute capital due to frozen office sectors and asset reinvention, creating a delay of five or more years for capital redeployment and a backlog for these funds.
- The IPO market requires recovery to fully restart private equity activities, although caution persists due to softer returns and delayed liquidity, with 1.5 trillion in dry powder available for private investors to capture depending on asset quality.
- Private credit faces potential risks of excessive competition for price and low terms due to massive capital inflows, potentially leading to inadequate risk compensation, while new entrants attempt to diversify beyond unsecured corporate lending.
- Concerns regarding alignment issues exist in certain secondaries and continuation funds, and underwriting new managers within secondary transactions is deemed difficult.
- Diversification is expected to remain entrenched in the industry, with growing visibility of diverse managers in sectors like healthcare.
- Geographically, India is viewed with a mix of bullish sentiment and historical caution, while Southeast Asia (Malaysia, Indonesia, Vietnam) offers opportunities driven by nearshoring and friendshoring trends away from China.
- China is treated with high caution regarding illiquid investments due to resolution timeframes of 5 to 15 years, whereas Argentina and Africa are being explored as emerging market opportunities, including a concentrated niche manager in Africa intended as a long-term holding.