guide to alternatives...3 guide to alternatives | global private capital fundraising billions usd...

Guide to Alternatives

MARKET INSIGHTS

|2Q 2020 As of May 31, 2020

2

Guide to Alternatives |

Private markets23. Private equity returns and dry powder24. Private equity deals and multiples25. Private equity deal trends26. U.S. public vs. private equity27. Private equity exit activity and equity issuance28. Private equity acquisitions and the secondary market29. Credit returns across recent economic cycles: 2004 – 201930. The Federal Reserve balance sheet and credit facilities31. Credit market participants and issuance32. U.S. middle market: Multiples and spreads33. EBITDA adjustments, rating changes and recovery rates34. Collateralized loan obligations

Hedge funds35. Hedge fund strategy returns36. Hedge funds and manager selection37. Hedge fund flows and exposures38. Hedge funds and traditional portfolios39. Hedge funds and volatility40. Equity and credit dislocations41. Equity and fixed income positioning42. Asset class volatility43. Hedge funds and the global equity market

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 11. U.S. real estate: Retail and industrial12. U.S. REITs and real estate13. U.S. REITs sector returns14. Europe real estate dynamics15. APAC real estate: Industrial

Global infrastructure and transport16. Global infrastructure investment17. Sources of global infrastructure returns18. Electricity consumption and utility spending19. Global renewable energy20. Global banks’ shipping finance21. High frequency travel22. Energy prices and storage

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

3


Global private capital fundraisingBillions USD

Alternatives fundraising

Source: Preqin, 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 May 31, 2020.

$502

$646

$740

$849

3

Alts

in a

ggre

gate

240 244336

426 440547

642 644 624

133

40 68

72

69103

117

127 121 116

14

7591

116

123146

134

142 149 157

18

2732

49

47

58

70

80 92 104

38

36

66

73

75

103

90

99 103 119

44

$0

$200

$400

$600

$800

$1,000

'11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Private equity Private credit Real estate Infrastructure Natural resources

$419

$959

$1,089 $1,108 $1,121

$248

4

Guide to Alternatives |Public and private market correlationsFi

nanc

ial

asse

tsPr

ivat

e m

arke

tsG

loba

l re

al e

stat

e

Oth

er

real

as

sets

Public and private market correlationsQuarterly 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 06/30/08 – 09/30/19. Returns are denominated inUSD.Data is based on availability as of May 31, 2020.

Hed

ge

fund

s4

Alts

in a

ggre

gate

2008 - 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 -0.1 0.1 1.0

Europe Core RE -0.2 0.3 0.8 1.0

APAC Core RE -0.2 0.1 0.9 0.8 1.0

Global Core Infra -0.1 -0.2 0.3 0.1 0.2 1.0

Direct Lending -0.1 0.7 0.4 0.5 0.3 0.1 1.0

Venture Capital -0.1 0.5 0.5 0.7 0.5 0.1 0.6 1.0

Private Equity 0.1 0.9 0.4 0.6 0.4 0.0 0.8 0.7 1.0

Equity Long/Short 0.2 1.0 0.0 0.2 0.1 -0.2 0.7 0.5 0.8 1.0

Relative Value 0.1 0.9 0.0 0.2 0.0 -0.1 0.8 0.4 0.8 0.9 1.0

Macro 0.3 0.4 -0.1 -0.1 -0.2 -0.1 0.0 0.1 0.2 0.4 0.3 1.0

5


-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: 4Q 2009 – 4Q 2019 annual returns for global equities, global bonds, U.S. core real estate and hedge funds. U.S. non-core real estate, global private equity and U.S. venture capital are represented by the 10-year horizon internal rate of return (IRR) ending 4Q 2019. Data is based on availability as of May 31, 2020.

5

10.3%

7.8%

3.2%

1.8%

10.7%

12.2%

5.6%

16.3%

1.9%

20.1%

-2.9%

20.6%

-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 03/31/2020, except Direct Lending, Global Infrastructure, Europe and APAC Real Estate (12/31/2019). 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; 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 May 31, 2020.

Alts

in a

ggre

gate Asset class yields

Percent

6

9.9%9.5% 9.4%

7.5%

6.3%5.7%

4.6%4.3% 4.2%

3.9%

2.3%

0.7%0.3%

0%

2%

4%

6%

8%

10%

12%

Fixed income

Equities

Alternatives

7


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 through February 29, 2020.Data is based on availability as of May 31, 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 May 31, 2020.

Global real estate investmentBillions USD

Real

est

ate

8

$0

$200

$400

$600

$800

$1,000

$1,200

$0

$50

$100

$150

$200

$250

$300

$350

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

EMEAAmericas

APAC

4-quarter moving total (RHS)

9

Guide to Alternatives |U.S. real estate dynamics 9

Source: NCREIF, NAREIT, 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 May 31, 2020.

U.S. vacancy rates by property typePercent

U.S. real estate cap rate spreadsTransactions based, spread to 10y UST, 4-quarter rolling average

REIT Rent Collections in COVID-19Percent

Real

est

ate

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

Average: 2.8%

March 2020: 3.3%

0%

20%

40%

60%

80%

100%

Industrial Apartments Office Heathcare Retail:Free

Standing

Retail:Shopping

Center

April May

10

Guide to Alternatives |U.S. real estate: Office

Sources: CBRE J.P. Morgan Asset Management.2020 data on inventory and penetration is an estimate. Data is based on availability as of May 31, 2020.

Flexible office space: Inventory and penetrationMillions of square feet, % penetration

Real

est

ate

10

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 (%)

11


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 May 31, 2020.

U.S. real estate: Retail and industrial

Mall leasing and retail sales growthGross leasable area, 2014-2019 retail sales growth

Industrial vacancy by property size (square feet)Percent

11

Real

est

ate

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

10

20

30

40

50

60 GLA (mil. sq. ft.) Retail sales growth (%)

0%

1%

2%

3%

4%

5%

6%

7%

10k-50k 50k-100k 100k-250k 250k-500k 500k-1mm 1mm+

12


-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 May 31, 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 ||

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD Ann. Vol.

Apa rtme nts Se lf S tora ge Industria l Lodging/ Re sorts

Mfgd. Home s Se lf S tora ge Industria l Da ta Cente rs Re t. Fre e S ta nding

Mfgd. Home s Data Cente rs Mfgd. Home s Lodging/ Re sorts

4 7 .0% 3 5 .2% 3 1.3% 2 7 .2% 4 6 .2% 4 0 .6% 3 0 .7% 2 8 .4% 13 .9% 4 9 .1% 8 .8% 2 2 .9% 2 3 .1%

Lodging/ Re sorts

Re giona l Ma lls

Re giona l Ma lls

Mfgd. Home s Apa rtme nts Mfgd. Home s Data Cente rs Mfgd. Home s Mfgd. Home s Industria l Se lf S tora ge Se lf S tora ge Industria l

4 2 .8% 2 2 .0% 2 8 .2% 10 .5% 3 9 .6% 2 5 .6% 2 6 .4% 2 4 .9% 11.4% 4 8 .7% - 8 .0% 16 .8% 2 0 .9 %

Re t. Fre e S ta nding

Mfgd. Home s Shopping Ce nte rs

Se lf S tora ge He a lth Ca re Apa rtme nts Lodging/ Re sorts

Industria l He a lth Ca re Data Cente rs Industria l Industria l Shopping Ce nte rs

3 7 .4% 2 0 .4% 2 5 .0% 9 .5% 3 3 .3% 16 .5% 2 4 .3% 2 0 .6% 7 .6% 4 4 .2% - 10 .3% 16 .3% 17 .9%

Re giona l Ma lls

Apa rtme nts Re t. Fre e S ta nding

Industria l Re giona l Ma lls



All Equity Apa rtme nts Office Mfgd. Home s Apa rtme nts Re giona l Ma lls

3 4 .6% 15 .1% 2 2 .5% 7 .4% 3 2 .6% 5 .9% 17 .0% 8 .7% 3 .7% 3 1.4% - 17 .3% 14 .4% 16 .8%

Shopping Ce nte rs

He a lth Ca re He a lth Ca re Re t. Fre e S ta nding

Lodging/ Re sorts

Shopping Ce nte rs

Mfgd. Home s Lodging/ Re sorts

Se lf S tora ge All Equity All Equity Re t. Fre e S ta nding

He a lth Ca re

3 0 .8% 13 .6% 2 0 .4% 7 .3% 3 2 .5% 4 .7% 14 .2% 7 .2% 2 .9% 2 8 .7% - 2 3 .4 % 13 .7% 16 .1%

Se lf S tora ge All Equity Se lf S tora ge Office Se lf S tora ge Re giona l Ma lls

Office Office Industria l Apa rtme nts Apa rtme nts All Equity Re t. Fre e S ta nding

2 9 .3% 8 .3% 19 .9% 5 .6% 3 1.4% 4 .2% 13 .2% 5 .2% - 2 .5% 2 6 .3% - 2 6 .3 % 12 .6% 16 .1%

All Equity Re t. Fre e S ta nding

All Equity Shopping Ce nte rs

Shopping Ce nte rs

All Equity All Equity Se lf S tora ge All Equity Shopping Ce nte rs

Office He a lth Ca re Se lf S tora ge

2 7 .9% 0 .4% 19 .7% 5 .0% 3 0 .0% 2 .8% 8 .6% 3 .7% - 4 .0% 2 5 .0% - 2 8 .0 % 10 .1% 16 .0%

Mfgd. Home s Shopping Ce nte rs

Office All Equity All Equity Industria l He a lth Ca re Apa rtme nts Re giona l Ma lls



Office Offic e

2 7 .0% - 0 .7% 14 .2% 2 .9% 2 8 .0% 2 .6% 6 .4% 3 .7% - 7 .0% 2 4 .8% - 3 6 .3 % 9 .1% 15 .2%

He a lth Ca re Office Lodging/ Re sorts

Re giona l Ma lls

Office Office Shopping Ce nte rs


Lodging/ Re sorts

He a lth Ca re He a lth Ca re Lodging/ Re sorts

Mfgd. Homes

19 .2% - 0 .8% 12 .5% - 1.0% 2 5 .9% 0 .3% 3 .7% 3 .1% - 12 .8% 2 1.2% - 3 6 .8 % 8 .9% 14 .1%

Industria l Industria l Mfgd. Home s Apa rtme nts Industria l He a lth Ca re Apa rtme nts He a lth Ca re Data Cente rs Lodging/ Re sorts

Shopping Ce nte rs

Shopping Ce nte rs

All Equity

18 .9% - 5 .2% 7 .1% - 6 .2% 2 1.0% - 7 .2% 2 .9% 0 .9% - 14 .1% 15 .6% - 4 9 .5 % 8 .6% 13 .4%

Office Lodging/ Re sorts

Apa rtme nts He a lth Ca re Re t. Fre e S ta nding

Lodging/ Re sorts

Re giona l Ma lls

Re giona l Ma lls

Office Se lf S tora ge Lodging/ Re sorts

Re giona l Ma lls

Apa rtme nts

18 .4% - 14 .3% 6 .9% - 7 .1% 9 .7% - 2 4 .4 % - 5 .2% - 2 .7% - 14 .5% 13 .7% - 5 1.3% 8 .4% 13 .3%

Data Cente rs Data Cente rs Data Cente rs Data Cente rs Data Cente rs Data Cente rs Se lf S tora ge Shopping Ce nte rs

Shopping Ce nte rs

Re giona l Ma lls

Re giona l Ma lls

Da ta Cente rs Da ta Ce nte rs

N/A N/A N/A N/A N/A N/A - 8 .1% - 11.4% - 14 .5% - 9 .1% - 6 0 .4 % N/A N/A

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. YTD is through 3/31/2020.Data is based on availability as of May 31, 2020.

Real

est

ate

13

14

Guide to Alternatives |Europe real estate dynamics

EU-15 property spreads by sectorSpread to Euro Govt. (7-10 yr.)

Europe takeupThousands of square meters

14

Real

est

ate

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 May 31, 2020.

-1%

0%

1%

2%

3%

4%

5%

6%

7%

'98 '01 '04 '07 '10 '13 '16 '190

5,000

10,000

15,000

20,000

25,000

30,000

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

UK Germany France Other Europe

15


Sources: Oxford Economics, Jones Lang LaSalle REIS, CBRE, J.P. Morgan Asset Management. Data is based on availability as of May 31, 2020.

APAC real estate: Industrial

Real

est

ate

APAC online retail salesPercent of total retail sales

APAC office and industrial pricingYields, 1Q 2020

15

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

China South Korea UnitedStates

Japan Australia NewZealand

Singapore0%

1%

2%

3%

4%

5%

6%

7%

New York Seoul Singapore ChinaTier I

Auckland Sydney Hong Kong Tokyo

Prime Office Prime Warehouse

16

Guide to Alternatives |Global infrastructure investment

Source: McKinsey Global Institute, J.P. Morgan Asset Management.Data is based on availability as of May 31, 2020.

Average annual infrastructure needUSD trillions, constant 2017 dollars

16

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

17

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 May 31, 2020.

Infr

astr

uctu

re

Global core infrastructure returnsRolling 4-quarter returns from income and capital appreciation

17

-5%

0%

5%

10%

15%

20%

25%

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

IncomeCapital appreciation

18


2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

'79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12 '15 '18

Source: Steve Cicala, University of Chicago, Bureau of Economic Analysis, J.P. Morgan Asset Management. Data is based on availability as of May 31, 2020.

Electricity consumption and utility spending

Electricity consumption post COVID-19Percent, 5-day moving average

Household utility spendingHousehold utility spending % of personal consumption expenditures

Infr

astr

uctu

re

18

Recession

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

5-Feb-20 5-Mar-20 5-Apr-20 5-May-20

U.S. EU Italy

19

Guide to Alternatives |Global renewable energy

Source: Bloomberg, Lazard, Eurostat, METI, BP Statistical, 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 May 31, 2020.

Global new investment in clean energyBillions USD

Share of energy from renewable sources% of total energy, 2018

0%

20%

40%

60%

80%

Infr

astr

uctu

re

Cost of wind, solar, natural gas and coalMean LCOE*, dollar per megawatt hour

$0

$100

$200

$300

$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

19

20

Guide to Alternatives |Global banks’ shipping finance

Source: Dealogic, UNCTAD, J.P. Morgan Asset Management.Data is based on availability as of May 31, 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

20

21

Guide to Alternatives |High frequency travel

Source: Apple, Inc., FlightRadar24, Transportation Security Administration (TSA), Metropolitan Transportation Authority (MTA), Association of American Railroads (AAR), Bloomberg, FactSet, J.P. Morgan Asset Management.Driving directions, total global flights, MTA turnstile entries and the Baltic Dry Index are 7-day moving averages. Driving directions are relative to a pre-pandemic baseline on January 13, 2020.Data is based on availability as of May 31, 2020.

Travel activityYear-over-year % change

21

Tran

spor

t

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

Feb '20 Mar '20 Apr '20 May '20

Driving directions Total global flights TSA airport travelers

MTA turnstile entires Baltic dry index U.S. railroad traffic

22


Source: Federal Reserve Bank of Dallas, Rystad Energy, NYMEX, Bloomberg, EIA, FactSet, J.P. Morgan Asset Management.*U.S. cost of production is based on the April 2020 Dallas Fed Energy Survey and represents the mean breakeven oil price for new wells of 92 E&P companies. Current oil price is as of 3/31/2020.Data is based on availability as of May 31, 2020.

Energy prices and storage

Cost of oil production by country and WTI oil priceUSD per barrel, 2015*

Net oil stock % of working storage capacityCushing, OK

Very large crude carrier (VLCC) charter ratesUSD thousands, rate per day for a 12 month period

22

Tran

spor

t

Current oil price

$0$10$20$30$40$50$60$70$80$90

'13 '14 '15 '16 '17 '18 '19

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$55

$60

UK

U.S

. - P

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ian

(DE

)U

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Bak

ken

Oth

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hale

U.S

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(Oth

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Oth

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non-

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U.S

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(Mid

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Nig

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Chi

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uwai

t

0%10%20%30%40%50%60%70%80%90%

Jan '20 Feb '20 Mar '20 Apr '20 May '20

May 22, 2020: 68%

April 2020: $75

23


Source: Pitchbook, J.P. Morgan Asset Management.Data is based on availability as of May 31, 2020.

Private equity returns and dry powder

Private equity dry powderBillions USD, by vintage year

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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

24


Source: Pitchbook, S&P LCD, J.P. Morgan Asset Management.B2B is business-to-business. B2C is business to consumer. Data is based on availability as of May 31, 2020.

Private equity deals and multiples

U.S. LBOs: purchase price multiplesEquity and debt over trailing EBITDA

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Equity

Debt

0

1,000

2,000

3,000

4,000

5,000

6,000

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Materials & resources ITHealthcare Financial servicesEnergy B2CB2B

U.S. private equity dealsNumber

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

5.3x

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

5.0x

0

2

4

6

8

10

12

'04 '06 '08 '10 '12 '14 '16 '18 '20

25


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 May 31, 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

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Energy & materials exits(2Qma, 1Q lag)

WTI oil price Software % total PE deals (LHS)Software investment % GDP (RHS)

-60%

-40%

-20%

0%

20%

40%

60%

'11 '12 '13 '14 '15 '16 '17 '18 '19 '201.2%

1.3%

1.4%

1.5%

1.6%

1.7%

1.8%

1.9%

2.0%

2.1%

10%

15%

20%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

26


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. Number of listed U.S. companies in 2020 is as of 3/31/2020.Data is based on availability as of May 31, 2020.

Number of listed U.S. companies*

1Q 20: 5,293

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U.S. public vs. private equity 26

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

27


Sources: Pitchbook, SEC, FactSet, J.P. Morgan Asset Management.Cyclical sectors include technology, financials, industrials, materials, energy, real estate, consumer discretionary and communication services. Defensive sectors include healthcare, utilities, and consumer staples.Data is based on availability as of May 31, 2020.

Private equity exits by typeBillions USD

Annual follow-on equity issuanceBillions USD

Private equity exit activity and equity issuance

$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$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

27

“Defensive” sectors

“Cyclical” sectors

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28


Sources: Greenhill, London Business School, Pitchbook, J.P. Morgan Asset Management. *2020 public company acquisition data is as of March 31, 2020.Data is based on availability as of May 31, 2020.

Private equity acquisitions and the secondary market

Sponsor-backed acquisitions of public companiesShare of total deal count

Secondary market transaction volume and pricingSecondary buyouts by year, $bn, percent of net asset value (NAV)

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28

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)

10%

12%

14%

16%

18%

20%

22%

24%

26%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

2020*: 18%

29


29

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

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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 3/31/2020, except for U.S. direct lending which is through 12/31/2019. Data is based on availability as of May 31, 2020.

29

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%


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%


loans

U.S.direct

lending

0.2% 0.3%0.9%

2.3%

1.5%

3.0%

0.0%

1.0%

2.0%

3.0%

4.0%


loans

U.S.direct

lending

30


30

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Source: FactSet, Federal Reserve, J.P. Morgan Investment Bank, J.P. Morgan Asset Management.Currently, the balance sheet contains $4.1 trillion in Treasuries and $1.8 trillion in MBS. The end balance forecast is $4.9 trillion in Treasuries and $2.2 trillion in MBS by December 2020. *Balance sheet forecast includes the Federal Reserve to purchase $770bn of Treasuries, $295bn of agency MBS and $35bn of agency CMBS through 2020. **MBS forecast includes agency CMBS. Fed assumptions are based on purchase activity in April 2020 and previous QE announcements. The Federal Reserve’s credit facilities include the Primary Dealer Credit Facility (PDCF), Commercial Paper Funding Facility (CPFF), Money Market Mutual Fund Liquidity Facility (MMLF), Term Asset-Backed Securities Loan Facility (TALF), Secondary Market Corporate Credit Facility (SMCCF), Primary Market Corporate Credit Facility (PMCCF), Municipal Liquidity Facility (MLF), Paycheck Protection Program Lending Facility (PPLF) and the Main Street Lending Facilities which include the Main Street Expanded Loan Facility (MSELF), Main Street New Loan Facility (MSNLF) and the Main Street Priority Loan Facility (MSPLF). Data is based on availability as of May 31, 2020.

The Federal Reserve balance sheet and credit facilities

The Federal Reserve balance sheet USD trillions

Federal Reserve’s credit facilitiesUSD billions

Forecast*

Dec. 2008:QE1 begins

Nov. 2010:QE2 begins

Sep. 2012:QE3 begins

Mar. 2020:QE4 begins

Dec. 2018:Balance sheet run off begins

Current amount outstandingFacility capacity

Maximum amount outstanding

Treasuries

MBS**

Other

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30

$0

$100

$200

$300

$400

$500

$600

$700

31


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 May 31, 2020.

Credit market participants and issuance

U.S. leveraged loan market participantsShare of total market, percent

Covenant-lite loan issuancePercent of total leveraged loans issuance

Global banks Non-bank companies and funds

31

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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

32


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 May 31, 2020.

U.S. middle market LBOs: purchase price multiplesDeals ≤ $50M EBITDA

DebtEquity

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U.S. middle market and large corporate lending spreadsBased on 3-month U.S. dollar LIBOR

32

L + 200

L + 300

L + 400

L + 500

L + 600

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

Middle MarketLarge Corporate

33


Source: Covenant Review, S&P LCD, Moody’s, J.P. Morgan Asset Management. Data is based on availability as of May 31, 2020.

EBITDA adjustments, rating changes and recovery rates

Average corporate debt recovery ratesVolume weighted recovery rates based on trading prices

Leveraged loan downgrades and upgradesRatio of downgrades to upgrades, rolling 12 months

Leveraged loan EBITDA adjustmentsM&A linked leveraged loans

Downgradesoutpacing upgrades

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Average (1983-2019)2019

4x

5x

6x

7x

8x

9x

'15 '16 '17 '18 '19

Standard EBITDAAdjusted EBITDA

0

1

2

3

4

5

6

7

8

'02 '04 '06 '08 '10 '12 '14 '16 '18

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33

34

Guide to Alternatives |Collateralized loan obligations

CLO downgradesPercent

CLO exposure to COVID-19 sensitive sectorsPercent

Source: S&P, Pitchbook, J.P. Morgan Asset Management. Data is based on availability as of May 31, 2020.

34

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0%

5%

10%

15%

20%

25%

30%

35%

40%

1/1/2020 2/1/2020 3/1/2020 4/5/2020 5/3/2020

B- CCC Nonperforming

Gaming Lodging and

Leisure6.2%

Retail3.7%

Services5.7%

Transportation2.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

CLO exposure

35

Guide to Alternatives ||

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD 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 Ma c ro

Globa l Equitie s

Globa 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 % 0 .1% 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

Globa l Bonds

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 % - 0 .3 % 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


Ne utra lEquity

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 % - 3 .0 % 4 .7 % 6 .6 %

Equity Long/Short Distre sse d Equity

Long/ShortHFRI


Ne utra lEquity

Long/ShortEquity

Long/ShortGloba l Bonds

Globa l Bonds

Re la tive Va lue

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 % - 7 .0 % 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

CompositeHFRI

CompositeGloba l Bonds

10 .2 % - 2 .1% 6 .4 % 7 .1% 3 .0 % - 1.1% 5 .4 % 6 .3 % - 1.7 % 6 .8 % - 9 .4 % 4 .0 % 5 .1%

Globa l Ma c ro

Globa l Ma c ro

Globa l Bonds


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

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 % - 10 .5 % 3 .7 % 3 .8 %

Globa l Bonds

HFRI Composite


Me rge r Arbitra ge

Me rge r Arbitra ge

Globa l Equitie s



HFRI Composite

Globa l Ma c ro Distre sse d


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 % - 12 .2 % 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

Equity Long/Short

Globa l Bonds


4 .6 % - 6 .9 % 2 .8 % - 0 .4 % 0 .6 % - 3 .2 % 2 .1% 4 .3 % - 7 .1% 2 .9 % - 12 .9 % 2 .5 % 2 .7 %


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


Globa l Equitie s

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 % - 2 1.3 % 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. YTD (year-to-date) returns are through 3/31/2020.Data is based on availability as of May 31, 2020.

Hed

ge fu

nds

35

36


-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 May 31, 2020.

36

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

37

Guide to Alternatives |Hedge fund flows and exposures

Hedge fund net asset flowBillions USD

Sector exposure of top 50 hedge funds% of total portfolio

Source: HFRI, FactSet, J.P. Morgan Asset Management. Data is based on availability as of May 31, 2020.

37

-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

1Q 2020:-$33.3bn

Hed

ge fu

nds

17.6%16.4%

11.2%

8.7%7.9% 7.8%

3.7% 3.5%2.9% 2.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

38


-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 May 31, 2020.

Hedge fund correlation with a 60/40 stock-bond portfolio*1990 – present, monthly

Hed

ge fu

nds

38

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

39


-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 '20

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 May 31, 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

39

0.5%0.3% 0.3%

-0.2%

-0.8% -0.9%

0.6%

0.6% 0.7%

0.1%0.0%

-0.5%

1.1%

0.9%1.0%

0.0%

-0.8%

-1.4%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

10-15 15-20 20-25 25-30 30-35 >35

40


13%18%23%28%33%38%43%48%53%58%

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

Sources: S&P Global, HFRI, FactSet J.P. Morgan Asset Management. Dispersion is the annualized, index-weighed standard deviation of the index constituents’ full-month total returns. Correlation is the correlations among daily returns of the index constituents during the month, calculated via the ratio of index variance to the index-weighed average constituent variance.Data is based on availability as of May 31, 2020.

Equity and credit dislocations

Corporate bond spread dispersionIndex weighted standard deviation of sector spreads, basis points

S&P 500 constituent dispersion3-month moving average

S&P 500 constituent correlation3-month moving average

Hed

ge fu

nds

High yield Investment grade

40

0.05

0.15

0.25

0.35

0.45

0.55

0.65

0.75

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

May 2020: 0.52

May 2020: 30%

0

20

40

60

80

100

120

140

160

180

200

0

100

200

300

400

500

600

700

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

41


-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

'15 '16 '17 '18 '19 '20

Equity and fixed income positioning

Source: CFTC, FactSet, J.P. Morgan Asset Management.Data is based on availability as of May 31, 2020.

S&P 500 E-Mini and 10-yr. U.S. Treasury Note positioningNet noncommercial futures positions as a percent of open interest

Hed

ge fu

nds

10-yr. U.S. Treasury

S&P 500 Net long

Net short

41

42


10

20

30

40

50

60

70

80

90

0

20

40

60

80

100

120

140

Jan '20 Feb '20 Mar '20 Apr '20 May '20

Source: CBOE, ICE BofA, J.P. Morgan Index Research, Johns Hopkins University, Bloomberg, FactSet, J.P. Morgan Asset Management.Equity volatility is represented by the VIX Index, interest rate volatility is represented by the MOVE Index and foreign exchange volatility is represented by the J.P. Morgan Global FX Volatility Index. COVID-19 data includes data from 185 countries.Data is based on availability as of May 31, 2020.

Asset class volatility

Equity, interest rate and foreign exchange volatilityZ-score, weekly

Growth in new COVID-19 cases and the VIX# of countries with higher than a 5% growth rate in daily number of confirmed cases, VIX Index level

Hed

ge fu

nds

Interest rateFX

Equity

# of countries

VIX

42

-3

-2

-1

0

1

2

3

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'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Hedge funds and the global equity market

Source: HFRX, MSCI, FactSet, J.P. Morgan Asset Management.Global hedge funds are represented by the HFRX Global Hedge Fund index.Data is based on availability as of May 31, 2020.

Global hedge fund beta to the MSCI AC World index21-day rolling correlation

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May 2020: 0.06

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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.For the purposes of MiFID II, the JPM Market Insights and Portfolio Insights programs are marketing communications and are not in scope for any MiFID II / MiFIR requirements specifically related to investment research.Furthermore, the J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote theindependence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product,strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples usedare generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing inany securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if anyinvestment mentioned herein is believed to be appropriate for their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions orinvestment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein isconsidered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value ofinvestments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are notreliable indicators of current and future results.

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