Private Equity

We go overweight Late-Stage Venture Capital and APAC Private Equity but remain underweight North America Buyouts. We maintain our neutral outlook towards Hedge Funds and are positive on Long-Short Equity, Event Driven, and CRO strategies. We are cooling towards Direct Lending strategies as competition and relative opportunities increase. CRE’s downturn continues to unfold; we are starting to be buyers.

Investors should be tactically tilting allocations towards Direct Lending, Distressed Debt, and Directional Hedge Fund strategies at the expense of Real Estate, Private Equity, and Diversifier Hedge Funds. Structural opportunities are emerging in Real Estate and Venture Capital.

We see challenges ahead for Global Buyout across geographies as valuations need further resetting. While we are concerned with capital controls and flight risk in Asia-Pacific Venture Capital, the upside potential from AI may be worth a look. The current entry point for Private Credit is opportune across North America and Europe with the distressed pipeline building. Real Estate does not look appealing with the macro and relative opportunity set driving our underweight. Hedge Funds have a favorable backdrop in the near-term, although prospects differ across Directional, Diversifier, and Crisis Risk Offset strategies.

We recommend investors to be cautious on Growth Equity and Late-Stage Venture Capital. The marginal dollar is currently best suited for Private Credit at the expense of Private Equity. Our next Special Report will examine why we prefer lenders of capital.

We see a more positive backdrop for credit providers, with bilateral and structuring features as tailwinds for Private Credit. While there may be potential green shoots in some areas of Private Equity, current valuations are not attractive. We prefer Directional Hedge Funds over Diversifier and Risk Mitigation strategies. Real Estate has been an effective hedge against inflation, but now historically low cap rates are a headwind.