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Guide to Alternatives
MARKET INSIGHTS
|1Q 2020 As of February 29, 2020
2
Guide to Alternatives |
Private markets27. Private equity returns and dry powder28. Private equity deals and multiples29. Private equity deal trends30. U.S. public vs. private equity31. Private equity exit activity32. Private equity distributions and the secondary market33. Credit returns across recent economic cycles: 2004 – 201934. U.S. direct lending risk premiums35. Credit market participants and issuance36. U.S. middle market lending: Multiples and spreads37. Loan ratings and recovery rates38. Private market risks
Hedge funds39. Hedge fund strategy returns40. Hedge funds and manager selection41. Hedge fund flows42. Hedge fund exposures43. Hedge funds and traditional portfolios44. Hedge funds and volatility
Alts in aggregate3. Alternatives fundraising4. Public and private market correlations5. Alternatives and manager selection6. Yield alternatives7. Alternatives and ESG
Global real estate 8. Global real estate investment9. U.S. real estate dynamics10. U.S. real estate: Office and retail11. U.S. real estate: Industrial12. U.S. REITs and real estate13. U.S. public and private real estate14. U.S. REITs sector returns15. European property yields and flows16. Sources of European property returns17. APAC real estate: Industrial18. APAC real estate: Japan residential and Australia office
Global infrastructure and transport19. Global infrastructure investment20. Sources of global infrastructure returns21. U.S. utilities: ROE, inflation and rates22. Global renewable energy: Cost and investment23. Global renewable energy: Share and sources24. Global trade by geography and product25. Global banks’ shipping finance26. Global transportation dynamics
Page reference
Prepared by:David Lebovitz, Global Market Strategist, Market Insights, J.P. Morgan Asset ManagementAnita Sonawane, Associate, Alternatives Solutions Group, J.P. Morgan Asset ManagementTyler Voigt, CFA, Associate, Market Insights, J.P. Morgan Asset Management
2
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Guide to Alternatives |
240 244336
426 435541
628 628 59540 68
72
69104
117
132 120107
7591
116
123146
134
137 148151
2732
49
47
58
70
82 9498
36
66
73
75
93
89
97 107109
$0
$200
$400
$600
$800
$1,000
'11 '12 '13 '14 '15 '16 '17 '18 '19
Private equity Private credit Real estate Infrastructure Natural resources
Global private capital fundraisingBillions USD
Alternatives fundraising
Source: Preqin, HFRI, J.P. Morgan Asset Management.Fundraising categories are provided by Preqin, and represent their estimate of annual capital raised in closed-end funds. Data may not sum to total due to rounding.Data is based on availability as of February 29, 2020.
$419
$502
$646
$740
$836
$952
$1,077 $1,096$1,059
3
Alts
in a
ggre
gate
4
Guide to Alternatives |Public and private market correlationsFi
nanc
ial
asse
tsPr
ivat
e m
arke
tsG
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l re
al e
stat
e
Oth
er
real
as
sets
Public and private market correlations10-years, quarterly returns
Source: MSCI, Bloomberg Barclays, NCREIF, Cliffwater, Burgiss, HFRI, J.P. Morgan Asset Management. RE – real estate. Global equities: MSCI ACWorld Index. Global Bonds: Bloomberg Barclays Global Aggregate Index. U.S. Core Real Estate: NCREIF Property Index – Open End DiversifiedCore Equity component. Europe Core Real Estate: IPD Global Property Fund Index – Continental Europe. Asia Pacific (APAC) Core Real Estate: IPDGlobal Property Fund Index – Asia-Pacific. Global infrastructure (Infra.): MSCI Global Quarterly Infrastructure Asset Index (equal-weighted blend).U.S. Direct Lending: Cliffwater Direct Lending Index. Global Private Equity: Cambridge Associates Global Private Equity Index. U.S. Venture Capital:Cambridge Associates U.S. Venture Capital Index. Hedge fund indices include equity long/short, relative value, and global macro and are all fromHFRI. All correlation coefficients are calculated based on quarterly total return data for the period 06/30/09 – 09/30/19. Returns are denominated inUSD.Data is based on availability as of February 29, 2020.
Hed
ge
fund
s4
Alts
in a
ggre
gate
2009 - 2019 Global Bonds
Global Equities
U.S. Core RE
Europe Core RE
APAC Core RE
Global Core Infra
Direct Lending
Venture Capital
Private Equity
Equity Long/Short
Relative Value Macro
Global Bonds 1.0
Global Equities 0.3 1.0
U.S. Core RE -0.3 -0.5 1.0
Europe Core RE (Continental Europe) -0.4 -0.3 0.6 1.0
APAC Core RE -0.3 -0.4 0.8 0.7 1.0
Global Core Infra -0.2 -0.4 0.4 0.1 0.2 1.0
Direct Lending 0.1 0.5 -0.1 -0.3 -0.3 0.1 1.0
Venture Capital -0.2 0.2 0.2 0.4 0.1 0.1 0.2 1.0
Private Equity 0.2 0.8 -0.3 -0.1 -0.2 -0.1 0.6 0.5 1.0
Equity Long/Short 0.2 1.0 -0.4 -0.3 -0.4 -0.3 0.6 0.3 0.9 1.0
Relative Value 0.3 0.9 -0.6 -0.5 -0.6 -0.3 0.7 0.1 0.7 0.9 1.0
Macro 0.3 0.5 -0.2 0.0 -0.2 -0.3 0.2 0.1 0.3 0.5 0.4 1.0
5
Guide to Alternatives |
-5%
0%
5%
10%
15%
20%
25%
Globalequities
Globalbonds
U.S. corereal estate
U.S. non-corereal estate
Globalprivate equity
U.S. venturecapital
Hedgefunds
Alternatives and manager selection
Private and public manager dispersionBased on returns over a 10 year window*
Alts
in a
ggre
gate
Sources: Lipper, NCREIF, Cambridge Associates, HFRI, J.P. Morgan Asset Management. Global equities (large cap) and global bonds dispersion are based on the world large stock and world bond categories, respectively. *Manager dispersion is based on: 2Q 2009 – 2Q 2019 annual returns for global equities, global bonds and U.S. core real estate. Hedge funds are based on 4Q 2009 to 4Q 2019 annual returns. U.S. non-core real estate, U.S. private equity and U.S. venture capital are represented by the 10-year horizon internal rate of return (IRR) ending 2Q 2019. Data is based on availability as of February 29, 2020.
5
11.8%
8.9%
4.1%
2.5%
8.9%
10.6%
2.5%
15.4%
3.3%
21.2%
-2.2%
20.0%
-0.8%
13.2%
Median
Top quartile
Bottom quartile
6
Guide to Alternatives |Yield alternatives
Source: BAML, Barclays, Bloomberg, Clarkson, Cliffwater, Drewry Maritime Consultants, Federal Reserve, FTSE, MSCI, NCREIF, FactSet, J.P. Morgan Asset Management. Yields are as of 12/31/2019, except Direct Lending, Global Infrastructure, EMEA, APAC and U.S. Real Estate (9/30/2019). Global Transport: Levered yields for transport assets calculated as the difference between charter rates (rental income), operating expenses, debt amortization and interest expenses, as a percentage of equity value. Yields for each of the sub-vessel types are calculated and respective weightings are applied to arrive at the current levered yields for Global Transportation; Preferreds: BAML Hybrid Preferred Securities; U.S. direct lending: Cliffwater Direct Lending Index; U.S. High Yield: Bloomberg US Aggregate Corporate High Yield; Global Infrastructure: MSCI Global Infrastructure Asset Index-Low risk; U.S. Real Estate: NCREIF-ODCE Index; Global REITs: FTSE NAREIT Global REITs; International Equity: MSCI AC World ex-U.S.; U.S. 10-year: 10-year U.S. Treasury yield; U.S. Equity: MSCI USA, Europe core real estate: IPD Global Property Fund Index – Continental Europe. Asia Pacific (APAC) core real estate: IPD Global Property Fund Index – Asia-Pacific. Euro Govt. (7-10 yr.): Bloomberg Barclays Euro Aggregate Government –Treasury (7-10Y).Data is based on availability as of February 29, 2020.
Alts
in a
ggre
gate Asset class yields
Percent
6
Fixed income
Equities
Alternatives
9.9% 9.9%
5.2% 5.1% 5.0%4.6%
4.4% 4.2% 4.2%
3.0%
1.9% 1.8%
0.2%0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
7
Guide to Alternatives |
Source: US SIF Foundation, Company Reports, J.P. Morgan IDS Data Science Team, J.P. Morgan Asset Management.Environmental, social and governance (ESG). Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated. *2020 ESG mentions are YTD.Data is based on availability as of February 29, 2020.
Alternatives and ESG
ESG mentions on earnings callsRussell 3000, number of mentions, annual
Alts
in a
ggre
gate
7
1357
135 125
283
24
70
8570
272
1
5
312
33
0
100
200
300
400
500
600
700
2010 2012 2014 2016 2018
ESG incorporation by alternative investment fundsBillions USD
Property funds and REITs
Hedge funds
Private equity and venture capital funds
0
50
100
150
200
250
300
350
400
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20*
8
Guide to Alternatives |Global real estate investment
Sources: CBRE Research, RCA (Americas), J.P. Morgan Asset Management.APAC is Asia Pacific. EMEA is Europe, Middle East and Africa. Data is based on availability as of February 29, 2020.
Global real estate investmentBillions USD
Real
est
ate
8
$0
$50
$100
$150
$200
$250
$300
$350
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19
EMEAAmericas
APAC
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Guide to Alternatives |
-10%
-5%
0%
5%
10%
15%
'88 '91 '94 '97 '00 '03 '06 '09 '12 '15 '18
U.S. real estate dynamics
Source: NCREIF, Federal Reserve, BLS, FactSet, J.P. Morgan Asset Management.The cap rate, which is computed as the net operating income over sales price, is the rate of return on a real estate investment property. Data is based on availability as of February 29, 2020.
U.S. vacancy rates by property typePercent
U.S. real estate cap rate spreadsTransactions based, spread to 10y UST, 4-quarter rolling average
U.S. real estate construction costsNonresidential fixed investment in structures, price index, y/y % chg.
Real
est
ate
Dec. 2019: 2.3%
9
0%
5%
10%
15%
20%
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Apartment Industrial Office Retail
0%
1%
2%
3%
4%
5%
'98 '01 '04 '07 '10 '13 '16 '19
Dec 2019: 2.8%
Average: 2.8%
10
Guide to Alternatives |
Sources: CBRE, Census Bureau, J.P. Morgan Asset Management.2020 data on inventory and penetration is an estimate. Gross leasable area (GLA) data is as of 2017.Data is based on availability as of February 29, 2020.
U.S. real estate: Office and retail
Flexible office space: Inventory and penetrationMillions of square feet, % penetration
Mall leasing and retail sales growthGross leasable area, 2014-2019 retail sales growth
10
-30%
-20%
-10%
0%
10%
20%
30%
40%
0
10
20
30
40
50
60
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
0
10
20
30
40
50
60
70
80
90
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Inventory (mil. sq. ft.) Penetration (%)
Real
est
ate
GLA (mil. sq. ft.) Retail sales growth (%)
11
Guide to Alternatives |U.S. real estate: Industrial
Sources: CBRE Econometric Advisors, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.
U.S. warehouse space under constructionMillions of square feet (MSF), vacancy rate
Real
est
ate
0%
2%
4%
6%
8%
10%
12%
0
50
100
150
200
250
300
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
MSF under construction Vacancy rate
Build-to-suit
Speculative
11
12
Guide to Alternatives |
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
'80 '82 '83 '85 '86 '88 '89 '91 '92 '94 '95 '97 '98 '00 '01 '03 '04 '06 '07 '09 '10 '12 '13 '15 '16 '18 '19
Direct real estate/S&P 500 correlation
REIT/S&P 500 correlation
U.S. REITs and real estate
Source: NAREIT, NCREIF, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.Real estate investment trusts (REITs). Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not necessarily a reliable indicator for current and future performance. Data is based on availability as of February 29, 2020.
U.S. REITs, real estate, and equities12-quarter rolling correlations, total return
Real
est
ate
Housing bubble/ Euro debt crisis1980 “Double dip
recession”1987 Crash/ S&L Crisis
Recession
12
13
Guide to Alternatives |
13
Source: NCREIF, Wilshire, CISCO, J.P. Morgan Asset Management.ODCE is the NCREIF Fund Index – Open End Diversified Core Equity, which is a benchmark for U.S. core real estate. WILRESI is Wilshire US Real Estate Securities Index, which is a benchmark for U.S. REITs. *Other in ODCE consists of hotels, healthcare, self-storage and land. **Other in WILRESI consists of single-family homes among additional property types.Megawatts indicates data center energy capacity. Data is based on availability as of February 29, 2020.
U.S. public and private real estate
Composition of U.S. private and public real estate indicesPercent
Data centers absorption and constructionMegawatts, 2019
Real
est
ate
13
0 100 200 300
Atlanta
Chicago
Phoenix
New York Tri-State
Dallas/Ft.Worth
Silicon Valley
Northern Virginia
Net Absorption Under Construction
Residential, 26% Residential,
19%
Industrial, 20%
Industrial, 14%
Office, 33%
Office, 13%
Retail, 16%
Retail, 13%
Hotels, 5%
Healthcare, 12%
Self Storage, 7%
Data Centers, 10%
Manufactured Homes, 3.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ODCE WILRESI
Other*, 4.5% Other**, 3.4%
14
Guide to Alternatives ||
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Ann. Vol.
Apa rtme nts Se lf S tora ge Industria l Mfgd. Home s Mfgd. Home s Se lf S tora ge Industria l Mfgd. Home s Mfgd. Home s Mfgd. Home s Mfgd. Home s Industria l
4 7 .0% 3 5 .2 % 3 1.3 % 10 .5 % 4 6 .2 % 4 0 .6 % 3 0 .7 % 2 4 .9 % 11.4% 4 9 .1% 22 .9 % 2 0 .9 %
Re giona l Ma lls
Re giona l Ma lls
Re giona l Ma lls
Se lf S tora ge Apa rtments Mfgd. Home s Mfgd. Home s Industria l He a lth Care Industria l Se lf S tora ge Shopping Ce nte rs
3 4 .6% 2 2 .0 % 2 8 .2 % 9 .5 % 3 9 .6 % 2 5 .6 % 14 .2 % 2 0 .6 % 7 .6 % 48 .7 % 16 .8 % 17 .9 %
Shopping Ce nte rs
Mfgd. Home s Shopping Ce nte rs
Industria l Hea lth Care Apa rtments Offic e All Equity Apa rtme nts Offic e Industria l Re giona l Ma lls
3 0 .8% 2 0 .4 % 2 5 .0 % 7 .4 % 3 3 .3 % 16 .5 % 13 .2 % 8 .7 % 3 .7 % 3 1.4 % 16 .3 % 16 .8 %
Se lf S torage Apa rtments He a lth Ca re Offic e Re giona l Ma lls
Shopping Ce nte rs
All Equity Offic e Se lf S tora ge All Equity Apa rtme nts Hea lth Care
2 9 .3% 15 .1% 2 0 .4 % 5 .6 % 3 2 .6 % 4 .7 % 8 .6 % 5 .2 % 2 .9 % 28 .7 % 14 .4 % 16 .1%
All Equity He a lth Ca re Se lf S tora ge Shopping Ce nte rs
Se lf S tora ge Re giona l Ma lls
Hea lth Care Se lf S tora ge Industria l Apa rtme nts All Equity Se lf S tora ge
2 7 .9% 13 .6 % 19 .9 % 5 .0 % 3 1.4 % 4 .2 % 6 .4 % 3 .7 % - 2 .5 % 26 .3 % 12 .6 % 16 .0 %
Mfgd. Home s All Equity All Equity All Equity Shopping Ce nte rs
All Equity Shopping Ce nte rs
Apa rtme nts All Equity Shopping Ce nte rs
He a lth Ca re Offic e
2 7 .0% 8 .3% 19 .7 % 2 .9 % 3 0 .0 % 2 .8 % 3 .7 % 3 .7 % - 4 .0 % 25 .0 % 10 .1% 15 .2 %
He a lth Ca re Shopping Ce nte rs
Offic e Re giona l Ma lls
All Equity Industria l Apa rtme nts Hea lth Care Re giona l Ma lls
He a lth Care Offic e Mfgd. Home s
19 .2 % - 0 .7 % 14 .2 % - 1.0 % 2 8 .0 % 2 .6 % 2 .9 % 0 .9 % - 7 .0 % 2 1.2 % 9 .1% 14 .1%
Industria l Offic e Mfgd. Home s Apa rtments Offic e Offic e Re giona l Ma lls
Re giona l Ma lls
Offic e Se lf S tora ge Shopping Ce nte rs
All Equity
18 .9 % - 0 .8 % 7 .1% - 6 .2 % 2 5 .9 % 0 .3 % - 5 .2 % - 2 .7 % - 14 .5 % 13 .7 % 8 .6 % 13 .4 %
Offic e Industria l Apa rtments He a lth Ca re Industria l Hea lth Care Se lf S tora ge Shopping Ce nte rs
Shopping Ce nte rs
Re giona l Ma lls
Re giona l Ma lls
Apa rtments
18 .4 % - 5 .2 % 6 .9% - 7 .1% 2 1.0 % - 7 .2 % - 8 .1% - 11.4% - 14 .5 % - 9 .1% 8 .4 % 13 .3 %
2010-2019
U.S. REITs sector returns
Sources: FTSE NAREIT, FactSet, J.P. Morgan Asset Management.All indices are from FTSE NAREIT. Mfgd. Homes represents manufactured homes.Data is based on availability as of February 29, 2020.
Real
est
ate
14
15
Guide to Alternatives |
Sources: RCA, CBRE, J.P. Morgan Asset Management.EU-15 is Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom. Apt is apartment. Data is based on availability as of February 29, 2020.
European property yields and flows
EU-15 property spreads by sectorSpread to Euro Govt. (7-10 yr.)
Capital flows by location and property type3Q 2019, Billions EUR
15
Real
est
ate
-1%
0%
1%
2%
3%
4%
5%
6%
7%
'98 '01 '04 '07 '10 '13 '16 '19
€ 0 € 5 € 10
Madrid Office
Frankfurt Office
Amsterdam Apt
AmsterdamOffice
Berlin Apt
Madrid Apt
Munich Office
Berlin Office
London Office
Paris Office
Domestic Continental Global
€13.6
€10.4
€4.1
€3.9
€3.6
€3.0
€2.6
€2.5
€2.3
€2.2
16
Guide to Alternatives |
Sources: MSCI, J.P. Morgan Asset Management.All returns are based on the respective MSCI IPD Global Property Index, and show one-year returns from income and capital appreciation.Past performance is not indicative of future results. Alternative investments carry more risk than traditional investments and are recommended only for long-term investment. Some alternative investments may be highly leveraged and rely on speculative investments that can magnify the potential for loss or gain. Diversification does not guarantee investment returns or eliminate the risk of loss.Data is based on availability as of February 29, 2020.
U.K. property returnsAnnual returns from income and capital appreciation
Germany property returnsAnnual returns from income and capital appreciation
France property returnsAnnual returns from income and capital appreciation
Sources of European property returns
Real
est
ate
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
IncomeCapital appreciation
-10%
-5%
0%
5%
10%
15%
20%
25%
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
IncomeCapital appreciation
-10%
-5%
0%
5%
10%
15%
20%
25%
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
IncomeCapital appreciation
16
17
Guide to Alternatives |
Sources: Oxford Economics, Jones Lang LaSalle REIS, CBRE, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.
APAC real estate: Industrial
Real
est
ate
APAC online retail salesPercent of total retail sales
APAC office and industrial pricingYields
17
0%
1%
2%
3%
4%
5%
6%
7%
New York Seoul Singapore ChinaTier I
Auckland Sydney Hong Kong Tokyo
Prime Office Prime Warehouse
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
China South Korea UnitedStates
Japan Australia NewZealand
Singapore
18
Guide to Alternatives |
Sources: Association of Real Estate Securitization, Japan Property Index, Jones Lang LaSalle, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.
APAC real estate: Japan residential and Australia office
Real
est
ate
Japan multi-familyOccupancy, percent
Australia prime officeNet effective rent, index level; occupancy, percent
18
90%
92%
94%
96%
98%
100%
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Tokyo 23 Wards Osaka Nagoya Fukuoka
2008 financial crisis
Tohoku earthquake
85%
90%
95%
100%
60
80
100
120
140
160
180
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Sydney NER Melbourne NERSydney Occupancy Melbourne Occupancy
Net effective rent index Occupancy
19
Guide to Alternatives |Global infrastructure investment
Source: McKinsey Global Institute, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.
Average annual infrastructure needUSD trillions, constant 2017 dollars
19
Infr
astr
uctu
re
Annual spending, % of GDP 1.0 0.4 0.1 0.1 1.3 0.5 0.6
$0.9
$0.4
$0.1$0.1
$1.1
$0.5
$0.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
Roads Rail Ports Airports Power Water Telecom Total
$3.6
4.0
20
Guide to Alternatives |Sources of global infrastructure returns
Source: MSCI, J.P. Morgan Asset Management.Infrastructure returns represented by the “low risk” category of the MSCI Global Quarterly Infrastructure Asset Index. Data show rolling one-year returns from income and capital appreciation. The chart shows the full index history, beginning in the first quarter of 2009.Past performance is not indicative of future results. Alternative investments carry more risk than traditional investments and are recommended only for long-term investment. Some alternative investments may be highly leveraged and rely on speculative investments that can magnify the potential for loss or gain. Diversification does not guarantee investment returns or eliminate the risk of loss.Data is based on availability as of February 29, 2020.
Infr
astr
uctu
re
Global core infrastructure returnsRolling 4-quarter returns from income and capital appreciation
20
-5%
0%
5%
10%
15%
20%
25%
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
IncomeCapital appreciation
21
Guide to Alternatives |
Source: America’s Electric Utilities, Moody’s, SNL.com, Bloomberg, BLS, JPMAM Global Alternatives Research, J.P. Morgan Asset Management. RoE is return on equity, which is the amount of net income returned as a percentage of shareholders’ equity. Average cost of debt is represented by the trailing 6-month average of Moody’s utilities yields. Grey bars denote recessionsData is based on availability as of February 29, 2020.
U.S. utilities: RoE, inflation and rates
U.S. utilities' average allowed RoE and interest rates U.S. utilities’ return on equity and inflation RoE (2-year lagged), CPI % change vs. prior year, 1980-2018
Infr
astr
uctu
re
Inflation (%)
Ret
urn
on e
quity
(%)
R2 = 0.54
211 10 19 28 37 46 55 64 73 82 91 100
109
118
127
136
145
154
163
172
181
190
20
20.5
21
21.5
22
22.5
23
23.5
24
24.5
25
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
'70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Electric allowed RoE Natural gas allowed RoEUtility bond yields 10-year Treasury rate
3
5
7
9
11
13
15
17
0 2 4 6 8 10 12 14
22
Guide to Alternatives |
Source: Lazard, Bloomberg, J.P. Morgan Asset Management. *LCOE is levelized cost of energy, the net present value of the unit-cost of electricity over the lifetime of a generating asset. It is often taken as a proxy for the average price that the generating asset must receive in a market to break even over its lifetime.Data is based on availability as of February 29, 2020.
Global renewable energy: Cost and investment
Cost of wind, solar, natural gas and coalMean LCOE*, dollar per megawatt hour
Global new investment in clean energyBillions USD
Infr
astr
uctu
re
22
$0
$50
$100
$150
$200
$250
$300
$350
$400
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
WindSolarNatural gasCoal
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Solar Wind Other Biofuels
23
Guide to Alternatives |Global renewable energy: Share and sources
Share of energy from renewable sources% of total energy, 2018
Infr
astr
uctu
re
0%
10%
20%
30%
40%
50%
60%
70%
80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Coal Natural Gas Nuclear Renewables Petroleum and Other
U.S. electricity generation by major sourcePercent
Source: Eurostat, METI, BP Statistical, EIA, J.P. Morgan Asset Management.Renewables consists of wind, hydropower, solar, biomass and geothermal. Data is based on availability as of February 29, 2020.
23
24
Guide to Alternatives |
Source: UNCTAD, Clarksons, J.P. Morgan Asset Management.Dry product consists of coal, ore, soybeans and bulk trade.Data is based on availability as of February 29, 2020.
Global trade by geography and product
Tran
spor
t
World seaborne trade by productEstimated trillion ton miles
24
International shipping trade by regionPercent share in world tonnage, percent
14%
16%
41%
22%
7%
1%
19%
61%
14%
5%
0% 10% 20% 30% 40% 50% 60%
Oceania
Europe
Asia
Americas
AfricaUnloaded
Loaded
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Dry bulk
Oil and oil products
Container
Gas
25
Guide to Alternatives |Global banks’ shipping finance
Source: Dealogic, UNCTAD, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.
0
50
100
150
200
250
300
350
400
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Deal value (Billions USD) No. of deals
Shipping loans volume
Tran
spor
t
25
26
Guide to Alternatives |
Source: UNCTAD, U.S. Bureau of Transportation Statistics, J.P. Morgan Asset Management.Numbers may not sum to 100% due to rounding.Data is based on availability as of February 29, 2020.
Global transportation dynamics
Average age of U.S. commercial aircraftYears
26
Age distribution of global shipping fleetPercent
10.4
11.8
12.7
13.3
8
9
10
11
12
13
14
1993 2000 2010 2018
Tran
spor
t
13%
22%
15%
9%
42%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0 - 4 years 5 - 9 years 10 - 14 years 15 - 19 years +20 years
27
Guide to Alternatives |
Source: Pitchbook, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.
Private equity returns and dry powder
Private equity dry powderBillions USD, by vintage year
Priv
ate
mar
kets
27
Private equity IRRsBy size bucket and vintage
0%
5%
10%
15%
20%
25%
30%
2000 – 2003 2004 – 2008 2009 – 2013
Median
Top quartile
Bottom quartile
$12.9 $21.3$31.6
$61.7
$99.9
$271.6
$315.9
$434.2
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
'12 '13 '14 '15 '16 '17 '18 '19
28
Guide to Alternatives |
Source: Pitchbook, S&P LCD, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.
Private equity deals and multiples
U.S. LBOs: purchase price multiplesEquity and debt over trailing EBITDA
Priv
ate
mar
kets
28
4.6x5.4x 5.3x
6.1x
5.0x
3.8x4.6x
4.9x 5.1x 5.3x5.7x 5.6x 5.4x 5.7x 5.8x 5.8x
2.6x
3.0x 3.1x
3.5x
4.0x
3.8x
3.8x3.7x 3.5x 3.4x
3.9x4.5x
4.5x
4.9x 4.8x
5.6x
0
2
4
6
8
10
12
'04 '06 '08 '10 '12 '14 '16 '18
Equity
Debt
Global private equity dealsShare of total
0%
10%
20%
30%
40%
50%
60%
Buyout/LBO Add-on Growth equity/platform creation
2019Average (2006-2019)
29
Guide to Alternatives |
-60%
-40%
-20%
0%
20%
40%
60%
'11 '12 '13 '14 '15 '16 '17 '18 '19
Sources: BEA, Pitchbook, FactSet, J.P. Morgan Asset Management.WTI oil price is a quarterly average. Software investment is represented by nonresidential fixed investment in software. Data is based on availability as of February 29, 2020.
Private equity deal trends
Oil prices and natural resource exitsEnergy & materials exit count, WTI oil price, y/y % change
Software investment and private equity% U.S. PE deals targeting software companies, software inv. % GDP
Priv
ate
mar
kets
29
Energy & materials exits(2Qma, 1Q lag)
WTI oil price Software % total PE deals (LHS)Software investment % GDP (RHS)
1.2%
1.3%
1.4%
1.5%
1.6%
1.7%
1.8%
1.9%
2.0%
10%
12%
14%
16%
18%
20%
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
30
Guide to Alternatives |
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
8,500
'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
Private vs. public equity sector weights
Sources: Cambridge Associates, World Federation of Exchanges, Standard & Poor’s, J.P. Morgan Asset Management.*Number of listed U.S. companies is represented by the sum of number of companies listed on the NYSE and the NASDAQ.**Other includes real estate and utilities. Percentages may not sum due to rounding .Data is based on availability as of February 29, 2020.
Number of listed U.S. companies*
2019: 5,524
Priv
ate
mar
kets
U.S. public vs. private equity 30
1.8%
3.2%
3.3%
4.1%
6.8%
8.6%
13.3%
13.5%
15.3%
30.2%
6.4%
7.3%
5.0%
2.8%
10.2%
13.1%
10.2%
9.4%
14.2%
21.5%
0% 5% 10% 15% 20% 25% 30% 35%
Other**
Cons. Staples
Energy
Materials
Comm. Services
Financials
Cons. Disc.
Industrials
Healthcare
Tech
S&P 500U.S. private equity
31
Guide to Alternatives |
U.S. IPOs with negative earningsPercent of all initial public offerings that year
Number of IPOs
Private equity exit activity
Priv
ate
mar
kets
Sources: Pitchbook, Jay Ritter, University of Florida, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.
Private equity exits by typeBillions USD
2019: 74%
31
2019: 110
0
100
200
300
400
500
600
700
800
'80 '84 '88 '92 '96 '00 '04 '08 '12 '16
0%
20%
40%
60%
80%
100%
'80 '84 '88 '92 '96 '00 '04 '08 '12 '16$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
32
Guide to Alternatives |
Sources: Preqin, Greenhill, London Business School, Pitchbook, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.
Private equity distributions and the secondary market
Global capital calls and distributionsBillions USD
Secondary market transaction volume and pricingSecondary buyouts by year, $bn, percent of net asset value (NAV)
Priv
ate
mar
kets
32
-$600
-$400
-$200
$0
$200
$400
$600
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Capital distributedCapital calledNet distribution
50%
60%
70%
80%
90%
100%
110%
120%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Secondary buyouts (LHS, $bn)
Secondary price (RHS, % of NAV)
33
Guide to Alternatives |
33
ExpansionManufacturing ISM > 50 and rising
Credit returns across recent economic cycles: 2004 - 2019
Late cycle coolingManufacturing ISM > 50 and falling
RecessionManufacturing ISM < 50 and falling
TurnaroundManufacturing ISM < 50 and rising
Priv
ate
mar
kets
Source: Institute for Supply Management, Bloomberg, Barclays, Credit Suisse, Cliffwater, J.P. Morgan Asset Management. The ISM Manufacturing Index is a nationwide survey of purchasing executives. A reading greater than 50 indicates increased economic activity and a reading less than 50 indicates decreased economic activity. 10y UST: Bloomberg Barclays U.S. Treasury Bellwethers (10y), 2y UST: Bloomberg Barclays U.S. Treasury Bellwethers (2y), U.S. IG: Bloomberg Barclays U.S. Aggregate Corporate Investment Grade, U.S. HY: Bloomberg Barclays U.S. Aggregate Corporate High Yield, U.S. leveraged loans: Credit Suisse Leveraged Loan Index, U.S. direct lending: Cliffwater Direct Lending Index. All returns are from 12/31/2004 through 12/31/2019, except for U.S. direct lending which is through 9/30/2019. Data is based on availability as of February 29, 2020.
33
-0.3%
0.2%
1.1%
2.9%2.2%
3.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
10y UST 2y UST U.S. IG U.S. HY U.S.leveraged
loans
U.S.direct
lending
2.9%1.4%
-0.3%
-3.1%-3.8%
-0.9%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
10y UST 2y UST U.S. IG U.S. HY U.S.leveraged
loans
U.S.direct
lending
2.3%
0.7%
1.6% 1.4%
0.9%
2.4%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
10y UST 2y UST U.S. IG U.S. HY U.S.leveraged
loans
U.S.direct
lending
-1.6%-0.1%
4.6%
9.4%8.1%
2.3%
-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%
10.0%
10y UST 2y UST U.S. IG U.S. HY U.S.leveraged
loans
U.S.direct
lending
34
Guide to Alternatives |U.S. direct lending risk premiums
Source: Cliffwater, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.
Direct U.S. middle market loans risk premiumsPercent
34
14.5%
2.2%
3.7%
2.1%
2.6%
1.9%
2.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Risk-free rate Broadly syndicatedloans
Directly originated,upper middle market
Non-sponsorborrowers
Lower middle market Second lien,subordinated debt
Total
Priv
ate
mar
kets
35
Guide to Alternatives |
Source: Ares, S&P LCD, J.P. Morgan Asset Management.Covenant-lite loans are a type of financing that is issued with fewer restrictions on the borrower with regard to collateral, level of income, and loan payment terms, and fewer protections for the lender, including financial maintenance tests that measure the debt-service capabilities of the borrower.Data is based on availability as of February 29, 2020.
Credit market participants and issuance
U.S. leveraged loan market participantsShare of total market, percent
Covenant-lite loan issuancePercent of U.S. issuance in institutional leveraged loans
Global banks Non-bank companies and funds
35
Priv
ate
mar
kets
72%
46%
20%13% 16%
28%
54%
80%87% 84%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1994 2000 2006 2012 20190%
10%
20%
30%
40%
50%
60%
70%
80%
90%
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
36
Guide to Alternatives |
5.8x
4.5x
3.2x
4.3x 4.3x 4.5x 4.6x5.3x 5.3x 5.1x 5.5x 5.6x 5.5x
3.4x
3.8x
3.4x
4.1x 3.7x 3.3x
4.1x
4.3x
5.3x5.0x
6.1x5.0x
7.4x
0x
2x
4x
6x
8x
10x
12x
14x
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
U.S. middle market: Multiples and spreads
Source: S&P LCD, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.
U.S. middle market LBOs: purchase price multiplesDeals ≤ $50M EBITDA
DebtEquity
Priv
ate
mar
kets
U.S. middle market and large corporate lending spreadsBased on 3-month U.S. dollar LIBOR
36
L + 200
L + 300
L + 400
L + 500
L + 600
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
Middle MarketLarge Corporate
37
Guide to Alternatives |
Source: S&P LCD, Moody’s, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.
Loan ratings and recovery rates
Leveraged loan downgrades and upgradesRatio of downgrades to upgrades, rolling 12 months
0
1
2
3
4
5
6
'02 '04 '06 '08 '10 '12 '14 '16 '18
Average corporate debt recovery ratesVolume weighted recovery rates based on trading prices
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Average (1983-2019)2019
37
Downgradesoutpacing upgrades
Upgrades outpacingdowngrades
Priv
ate
mar
kets
38
Guide to Alternatives |Private market risks
U.S. LBOs volume by type: Sponsor-to-sponsorPercent
Private debt fundraising by first time fundsCumulative capital raised and fund count
Source: S&P LCD, Pitchbook, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.
0%
10%
20%
30%
40%
50%
60%
'02 '04 '06 '08 '10 '12 '14 '16 '18
$6.5 $8.2 $12.0 $12.9 $16.6 $17.5 $24.8 $27.2 $30.1 $32.0 $34.6
13
19
2730
37
43
51
58
6467
73
0
10
20
30
40
50
60
70
80
$0
$5
$10
$15
$20
$25
$30
$35
$40
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Fund count (RHS)Capital raised ($bn, LHS)
38
Priv
ate
mar
kets
39
Guide to Alternatives ||
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Ann. Vol.
Globa l Equitie s
Globa l Bonds
Globa l Equitie s
Globa l Equitie s
Globa l Ma c ro
Eq. Ma rke t Ne utra l Distre sse d Globa l
Equitie sMe rge r
Arbitra geGloba l
Equitie sGloba l
Equitie sGloba l
Equitie s
13 .2 % 5 .6 % 16 .8 % 2 3 .4 % 5 .6 % 4 .3 % 15 .1% 2 4 .6 % 3 .3 % 2 7 .3 % 9 .4 % 13 .2 %
Distre sse d Me rge r Arbitra ge
Re la tive Va lue
Equity Long/Short
Globa l Equitie s
Me rge r Arbitra ge
Globa l Equitie s
Equity Long/Short
Re la tive Va lue
Equity Long/Short
Re la tive Va lue
Equity Long/Short
12 .1% 1.5 % 10 .6 % 14 .3 % 4 .7 % 3 .3 % 8 .5 % 13 .3 % - 0 .4 % 13 .7 % 5 .2 % 8 .0 %
Re la tive Va lue
Re la tive Va lue Distre sse d Distre sse d Re la tive
Va lueRe la tive
Va lueRe la tive
Va lueHFRI
CompositeEq. Ma rke t
Ne utra lHFRI
CompositeEquity
Long/Short Distre sse d
11.4 % 0 .1% 10 .1% 14 .0 % 4 .0 % - 0 .3 % 7 .7 % 8 .6 % - 1.0 % 10 .4 % 4 .7 % 6 .6 %
Equity Long/Short Distre sse d Equity
Long/ShortHFRI
CompositeEq. Ma rke t
Ne utra lEquity
Long/ShortEquity
Long/ShortGloba l Bonds
Globa l Bonds
Re la tive Va lue Distre sse d HFRI
Composite
10 .5 % - 1.8 % 7 .4 % 9 .1% 3 .1% - 1.0 % 5 .5 % 7 .4 % - 1.2 % 7 .4 % 4 .5 % 5 .5 %
HFRI Composite
Eq. Ma rke t Ne utra l
HFRI Composite
Re la tive Va lue
HFRI Composite
HFRI Composite
HFRI Composite Distre sse d Distre sse d Globa l
BondsHFRI
CompositeGloba l Bonds
10 .2 % - 2 .1% 6 .4 % 7 .1% 3 .0 % - 1.1% 5 .4 % 6 .3 % - 1.7 % 6 .8 % 4 .0 % 5 .1%
Globa l Ma c ro
Globa l Ma c ro
Globa l Bonds
Eq. Ma rke t Ne utra l
Equity Long/Short
Globa l Ma c ro
Me rge r Arbitra ge
Re la tive Va lue
Globa l Ma c ro
Me rge r Arbitra ge
Me rge r Arbitra ge
Re la tive Va lue
8 .1% - 4 .2 % 4 .3 % 6 .5 % 1.8 % - 1.3 % 3 .6 % 5 .1% - 4 .1% 6 .8 % 3 .6 % 3 .8 %
Globa l Bonds
HFRI Composite
Eq. Ma rke t Ne utra l
Me rge r Arbitra ge
Me rge r Arbitra ge
Globa l Equitie s
Eq. Ma rke t Ne utra l
Eq. Ma rke t Ne utra l
HFRI Composite
Globa l Ma c ro
Eq. Ma rke t Ne utra l
Globa l Ma c ro
5 .5 % - 5 .3 % 3 .0 % 4 .7 % 1.7 % - 1.8 % 2 .2 % 4 .9 % - 4 .7 % 6 .5 % 2 .6 % 3 .7 %
Me rge r Arbitra ge
Globa l Equitie s
Me rge r Arbitra ge
Globa l Ma c ro
Globa l Bonds
Globa l Bonds
Globa l Bonds
Me rge r Arbitra ge
Equity Long/Short Distre sse d
Globa l Bonds
Eq. Ma rke t Ne utra l
4 .6 % - 6 .9 % 2 .8 % - 0 .4 % 0 .6 % - 3 .2 % 2 .1% 4 .3 % - 7 .1% 2 .9 % 2 .5 % 2 .7 %
Eq. Ma rke t Ne utra l
Equity Long/Short
Globa l Ma c ro
Globa l Bonds Distre sse d Distre sse d
Globa l Ma c ro
Globa l Ma c ro
Globa l Equitie s
Eq. Ma rke t Ne utra l
Globa l Ma c ro
Me rge r Arbitra ge
2 .9 % - 8 .4 % - 0 .1% - 2 .6 % - 1.4 % - 8 .1% 1.0 % 2 .2 % - 8 .9 % 2 .3 % 1.3 % 2 .3 %
2010-2019
Hedge fund strategy returns
Source: MSCI, Bloomberg Barclays, HFRI, FactSet, J.P. Morgan Asset Management. Global equities reflect the MSCI AC World Index and global bonds reflect the Bloomberg Barclays Global Aggregate Index. All hedge fund returns are from HFRI. HFRI Composite: HFRI FW Composite Index. Returns may fluctuate as hedge fund reporting occurs on a lag. Please see disclosure pages for index definitions.Data is based on availability as of February 29, 2020.
Hed
ge fu
nds
39
40
Guide to Alternatives |
-5%
0%
5%
10%
15%
20%
All hedge funds Fixed incomerelative value
Equity marketneutral
Event driven Relative valuetotal
Relative valuemulti-strategy
Macro total Equity hedge Emergingmarkets
Hedge funds and manager selection
Hedge fund manager dispersionBased on returns from 4Q 2009 – 4Q 2019
Sources: HFRI, J.P. Morgan Asset Management. Manager dispersion is based on: 4Q 2009 to 4Q 2019 monthly returns for hedge funds. Blue bar denotes median. All hedge funds: Fund Weighted Composite Index, Equity market neutral: Equity hedge – equity market neutral, Event-driven: Event-Driven (Total), Relative value: Relative Value (Total), Relative value multi-strategy: Relative Value Multi-Strategy, Macro total: Macro (Total), Equity hedge: Equity Hedge (Total), Emerging markets: Emerging Markets Global. Data is based on availability as of February 29, 2020.
40
Hed
ge fu
nds
Med.
13.2%
-0.8%
3.5%
11.5%
-0.8% -0.7%
8.7%
1.2%
13.0%
2.4%
12.5%
1.6%
10.5%
-3.9%
9.7%
15.1%
-0.7%
11.6%Top quartile
Bottom quartile
41
Guide to Alternatives |Hedge fund flows
Hedge fund net asset flowBillions USD
Sources: HFRI, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.
41
Hed
ge fu
nds
-$200
-$150
-$100
-$50
$0
$50
$100
$150
$200
$250
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
2019:-$43.1bn
42
Guide to Alternatives |
Global data sizeZettabytes
Computing power: transistors per microprocessorLog
Hedge fund exposures
Sources: FactSet, Our World in Data, IDC, J.P. Morgan Asset Management. Zettabyte is a measure of digital information storage. One zettabyte is equivalent to a billion terabytes. Data is based on availability as of February 29, 2020.
Sector exposure of top 50 hedge funds% of total portfolio
42
Hed
ge fu
nds
1.E+031.E+04
1.E+05
1.E+061.E+07
1.E+08
1.E+091.E+10
1.E+11
'71 '76 '81 '86 '91 '96 '01 '06 '11 '16
0
10
20
30
40
50
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Size of global data
15.6%
13.2%12.9%
8.8%
7.4% 7.2%
4.9%4.0% 3.7%
2.6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
43
Guide to Alternatives |
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Hedge funds and traditional portfolios
Sources: HFRI, Standard & Poor’s, Bloomberg, Barclays, FactSet, J.P. Morgan Asset Management.*60/40 portfolio is 60% S&P 500 and 40% Bloomberg Barclays U.S. Aggregate. Hedge funds are represented by HFRI Macro.Data is based on availability as of February 29, 2020.
Hedge fund correlation with a 60/40 stock-bond portfolio*1990 – present, monthly
Hed
ge fu
nds
43
9/11, Post tech-bubble recession
Tech bubble
Global financial crisis
Eurozone double-dip
Energy weakness, dollar strength
Government shutdown(s)Early 1990’s
Recession/ Fed
tightening concerns
44
Guide to Alternatives |
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0
10
20
30
40
50
60
70
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Source: HFRI, CBOE, MSCI, FactSet, J.P. Morgan Asset Management.Historical beta is based on regression analysis, where the HFRI is the dependent variable and the MSCI AC World Index is the independent variable. Monthly VIX reading is an average. Numbers may not sum to 100% due to rounding. Data is based on availability as of February 29, 2020.
Hedge funds and volatility
Hedge funds and volatilityAverage monthly hedge fund returns by VIX level, 1990 - present
Hed
ge fu
nds
Macro hedge fund relative performance & volatilityVIX index level, y/y change in rel. perf. of HFRI Macro index
VIX
Macro hedge fund relative performance to HFRI
BetaAlpha
44
0.5%0.3% 0.3%
-0.2%
-0.8%-0.6%
0.6%
0.6% 0.7%
0.1%
0.0%
-0.3%
1.1%
0.9%1.0%
0.0%
-0.8%-0.9%-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
10-15 15-20 20-25 25-30 30-35 >35
45
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J.P. Morgan Asset Management – DefinitionsAlpha – Is the difference between an investment’s return and its expected return, given its level of beta.Accredited investor – Defined by Rule 501 of Regulation D, an individual (i.e. non-corporate) "accredited investor" is either a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase OR a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. For the complete definition of accredited investor, see the SEC website. Capital commitment – A Limited Partner’s obligation to provide a specific amount of capital to a Closed-end Fund (defined below) for investments. The Capital Commitment is “drawn down” or “called” over time, meaning a portion of the commitment must be wired to the Closed-end Fund by a set date. Capital called – The amount of capital wired to a fund that is “drawn down” over time as the General Partner selects investments. Carried interest (aka incentive fee) – A fee paid to a fund manager for generating returns over a benchmark; calculated as a percentage of investment profits over a hurdle rate and charged in addition to a management fee. In Private Equity, carried interest (typically up to 20% of the profits) becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate. Catch-up – This is a common term of the private equity partnership agreement. Once the general partner provides its limited partners with their preferred return, if any, it then typically enters a catch-up period in which it receives the majority or all of the profits until the agreed upon profit-split, as determined by the carried interest, is reached. Clawback – A clawback obligation represents the general partner's promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. Generally, this means that the general partner may not keep distributions representing more than a specified percentage (e.g., 20%) of the fund's cumulative profits, if any. When triggered, the clawback will require that the general partner return to the fund's limited partners an amount equal to what is determined to be "excess" distributions. Closed-end fund – A fund that has a finite capital raising period and stated term (i.e. 5 years, 10 years, etc.). Clients will have the ability to commit to the fund during the set fundraising period, after which point the fund will be closed to new investors. Unlike an open-ended fund, there is limited flexibility on when a client may invest and there is no liquidity/redemptions. Clients who invest are obligated to remain in the fund for the duration of the term; they will be required to fulfill capital calls during the stated commitment period and will receive periodic distributions based on underlying monetization of investments. Commitment period – The period of time within which the fund can make investments as established in the Limited Partnership Agreement (“LPA”), meaning the governing document, for the fund. Direct co-investment – An investment made directly in a single underlying asset of a fund. Example: The General Partner elects to invest in an operating company alongside a fund. Dispersion – Difference between the best-performing and worst-performing strategies.Distressed – A financial instrument in a company that is near or is currently going through bankruptcy. This usually results from a company's inability to meet its financial obligations. As a result, these financial instruments have suffered a substantial reduction in value. Distressed securities can include common and preferred shares, bank debt, trade claims (goods owed) and corporate bonds. Distributions – The total proceeds distributed by the fund to the Limited Partners, which may include both return of capital and gain distributions.General partner – The managing partner of a Limited Partnership. The General Partner is managed by the asset management team responsible for making fund investments (i.e., the intermediary between investors with capital and businesses seeking capital to grow).Gross IRR – The dollar-weighted internal rate of return, before management fees and carried interest generated by the fund.
Hedge Fund strategies:Relative Value/Arbitrage involves the simultaneous purchase and sale of similar securities to exploit pricing differentials. Strategies in this sector offer potential to generate consistent returns while minimizing directional risk.Opportunistic/Macro strategies involve investments in a wide variety of strategies and instruments, which often have a directional stance based on the manager’s global macroeconomic views. Long/Short (L/S) Equity involves long and/or short positions in equity securities deemed to be under- or overvalued, respectively. Exposures to sectors, geographies, and market capitalizations are often flexible and will change over time. Merger Arbitrage/Event Driven strategies invest in opportunities created by significant corporate transactions and events which tend to alter a company’s financial structure or operating strategy. Distressed Securities invests in debt and equity securities of firms in reorganization or bankruptcy.
High watermark – The highest peak in value that an investment fund has reached. This term is often used in the context of fund manager compensation. For example, a $1,000,000 investment is made in year 1 and the fund declines by 50%, leaving $500,000 in the fund. In year 2, the fund returns 100%, bringing the investment value back to $1,000,000. If a fund has a high watermark, it will not take incentive fees on the return in year 2, since the investment has never grown. The fund will only take incentive fees if the investment grows above the initial level of $1,000,000. Hurdle rate – The rate of return that the fund manager must meet before collecting incentive fees.Internal rate of return (IRR) – The dollar-weighted internal rate of return. This return considers the daily timing of cash flows and cumulative fair stated value, as of the end of the reported period. J-Curve effect – Occurs when funds experience negative returns for the first several years. This is a common experience, as the early years of the fund include capital drawdowns and an investment portfolio that has yet to mature. If the fund is well managed, it will eventually recover from its initial losses and the returns will form a J-curve: losses in the beginning dip down below the initial value, and later returns show profits above the initial level. K-1 – Tax document issued for an investment in partnership interests to report your share of income, deductions and credits. (Note that Private Investments generally issue a Schedule K-1 instead of a Form 1099 for tax reporting. K-1s may at times be issued later than 1099s, requiring investors to file for an extension).Limited partner – An investor in a Limited Partnership, which is a form of legal entity used for certain hedge funds, private equity funds and real estate funds. Management fee – Fee paid to a fund manager for managing the fund; typically calculated as a percentage of assets under management.Mezzanine finance – Loan finance that is half-way between equity and secured debt, either unsecured or with junior access to security. A mezzanine fund is a fund focusing on mezzanine financing. Multiple of Invested Capital (MOIC) – Calculation performed by adding the remaining (reported) value and the distributions received (cash out) and subsequently dividing that amount by the total capital contributed (cash in). Net asset value (NAV) – This is the current fair stated value for each of the investments, as reported by the administrator of the fund. Net IRR – The dollar-weighted internal rate of return, net of management fees and carried interest generated by the fund. This return considers the daily timing of all cash flows and the cumulative fair stated value, as of the end of the reported period.
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J.P. Morgan Asset Management – DefinitionsOpen-ended fund – As it relates to private alternatives (not mutual fund structure), an open-ended fund is a fund that has no stated term or maturity and allows clients to invest and redeem on an ongoing basis. The frequency of investments (aka subscriptions) and / or redemptions may vary. Redemptions from open-ended private alternative funds generally require advance notice in writing.Pari Passu – At an equal rate or pace, without preference. Portfolio company – A business entity that has secured at least one round of financing from one or more private equity funds. A company in which a given fund has invested. Post-money valuation – The valuation of a company immediately after the most recent round of financing. For example, a venture capitalist may invest $3.5 million in a company valued at $2 million “pre-money” (before the investment was made). As a result, the startup will have a post money valuation of $5.5 million. Pre-money valuation – The valuation of a company prior to a round of investment. This amount is determined by using various calculation methods, such as multiples to earnings or comparable to other private and/or public companies. Preferred return – Also known as Hurdle Rate. Private equity – Equity capital invested in a private company through a negotiated process. Primary investment – An investment made in a newly formed limited partnership. Real estate investment trust (REITs) – Stocks listed on an exchange that represent an interest in a pool of real estate properties.Realized value – The amount of capital extracted from an investment. Reported/remaining value – The current stated value for each of the investments in a fund, as reported by the General Partner of the fund. Return on equity (RoE) - Amount of net income returned as a percentage of shareholders' equity.Secondary market investment – The buying and selling of pre-existing investor commitments. Seed money – The first round of capital for a start-up business. Seed money usually takes the structure of a loan or an investment in preferred stock or convertible bonds, although sometimes it is common stock. Seed money provides startup companies with the capital required for their initial development and growth. Angel investors and early-stage venture capital funds often provide seed money. Tax documents – See K-1.Total value – The combination of market value and realized value of an investment. Shows the total worth of an investment. Unfunded commitment – Money that has been committed to an investment but not yet transferred to the General Partner. Venture capital – A specialized form of private equity, characterized chiefly by high-risk investment in new or young companies following a growth path in technology and other value-added sectors. Vintage year – The year of fund formation and first draw-down of capital. Write-down – A reduction in the value of an investment.
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J.P. Morgan Asset Management – Risks & disclosures
The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries toparticipate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current marketconditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investmentdecision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit andaccounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all availablerelevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxationagreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future resultsJ.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy.This communication is issued by the following entities: In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be.; in Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), which this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919). For all other markets in APAC, to intended recipients only.This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in the United States by J.P. Morgan Institutional Investments, Inc. or JPMorgan Distribution Services, Inc., both are members of FINRA; J.P. Morgan Investment Management, Inc. or J.P. Morgan Alternative Asset Management, Inc. Copyright 2020 JPMorgan Chase & Co. All rights reserved.Unless otherwise stated, all data are as of February 29, 2020 or most recently available.
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