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Investment House View Discussion: April 2024

Investment House View Discussion: April 2024

In this wide-ranging discussion, three of our top market experts - Wassim Jomaa, CFA, Naji Nehme, CFA, and David Darst, CFA - cover the global economy, investment themes, and portfolio strategy, taking the latest developments into account and making their predictions for the coming months.

Apr 21, 2024رؤى السوق- 3 min

The macro outlook

This is a year of elections, including those held in Taiwan, Mexico, Indonesia, the EU, and the United States. There is therefore potential uncertainty around policy decisions (defense spending, bank regulation, and antitrust policy, among others etc.) Does this mean trouble for markets?

Not necessarily. Bond spreads have tightened further since last year, implying that a global recession is (still) not in the cards.

In the US, presidential challenger Trump is perceived as business-friendly, and his lead in the polls is having a positive effect on markets. Democrats are unlikely to risk a recession, and so will avoid any drastic regulation for the time being.

The Fed’s own prediction of three rate cuts for this year looks likely to begin in June. Further monetary policy loosening is also going on in the background, with the slowing down of Quantitative Tightening (QT), and reduction of “reverse repos” reintroducing liquidity into the system.

Inflation is proving sticky, however, thanks to wage growth, meaning that an elevated interest rate and inflation scenario will likely persist for the foreseeable future. In other words, we are not set for a return to ultra-low rate environment to which many had become accustomed.

Pockets of growth

The U.S. has delivered significant growth since the pandemic, but this has been driven to a large extent by significant stimulus spending, which by its nature is unsustainable.

Despite China’s current difficulties, Asia offers some promising opportunities, such as Indonesia and Vietnam. Many are now looking to Japan, whose return to growth is being accompanied by an opening up of the economy to outside investors, as large conglomerates divest non-core divisions or negotiate succession transitions.

A weakening of the Japanese Yen, however, could trigger headwinds, particularly if it prompts China to weaken its own currency and/or flood the global markets with deflationary goods (e.g., semiconductors).

In sectoral terms, Wellness and Longevity provide an obvious target as the global ageing (and in many countries, wealthy) population continues to grow. More broadly, a challenged growth environment will mean that investors must look for firms with higher productivity. Or in other words, firms deploying AI and robotics effectively.

Asset classes

Valuations are high in historic terms (the CAPE is at 34.4 versus a historic 17-19 range). This is not necessarily a trigger for a correction in and of itself. However, individual stocks are at risk of sudden falls from grace, as occurred with Tesla and Apple, which recently dropped out of the ‘Magnificent 7’. This means that non-public alternatives (Real Estate, PE, Private Credit) remain key.

Real Estate

‘Real Estate’ is not a single, homogeneous sector, but a collection of sub-sectors which behave very differently, and must be studied separately. Offices, for example, are transitioning from places to work to places to socialize, and sustainable building practices are becoming more widespread. Commercial real estate that fails to adjust to this trend is likely to underperform.

While Industrial real estate (e.g., data centers) is at risk from trends in automation, Residential units - in particular, multi-family homes - are in high demand. Even so, local regulations (e.g., rent controls) can have a meaningful impact on profitability, meaning the sub-sector as a whole should be approached with caution.

Nursing homes have experienced a sharp decline since the pandemic, but retain long-term demographic potential and hence could be attractive at their current valuations.

Private Equity

Lower valuations have caused difficulties for some PE funds looking to exit deals and deliver returns to shareholders. The ‘Secondaries’ market - now 6% of the PE market overall - is growing to help solve this problem.

The PE game as a whole has now changed from a focus on multiple expansion and revenue growth - both challenged in the current environment - to margin expansion through operational improvement. Sponsors are therefore likely to become specialized in optimizing for certain stages of development (such as growth stage and mature stage) or applying specific improvements including digitalization, synergies through roll-ups, or public-to-private.

Approximately $300bn of the $1.2trn ‘dry powder’ that remains must be spent this year, and so we will continue to see activity. Historically, funds that invest at the bottom of the cycle deliver the highest returns, meaning that higher interest rates could represent a positive development for effective sponsors.

Private Credit

As banks have continued to retreat from lending in many areas (e.g., commercial aircraft, shipping) private lenders have entered these spaces to help finance projects and deals. Recently, this also includes real estate developments and corporate M&A.

Private lenders can often enter agreements on favorable investment terms, including higher interest rates, transaction fees, and upside participation. We have found in the case of real estate that it makes more sense to lend than invest directly, as cap rates have declined significantly in the past decade.

While there are some attractive sectors, such as Cybersecurity, as with all private markets, success depends on the specific opportunity - hence the only strategy is to be opportunistic (rather than blindly ‘piling in’).

Implications for Portfolio Strategy

As we outlined in our recent ‘Shifting Balance’ report, the new ‘high interest, high inflation’ regime will mean that asset classes behave differently in comparison with the past two decades. A new toolkit for portfolio construction is required.

Diversification, while still critically important, is not as straightforward as it was previously. The fundamentals still remain the same, but in proportional terms, the role of alternative assets has increased as the negative correlation between equities and bonds (the classical 60:40 strategy) has weakened.

As companies are also staying private for longer, investing in private markets is increasingly important for gaining early exposure to future ‘magnificent’ stocks. As private investments are less volatile and longer-term in nature than public investments, investors are less exposed to the psychological rollercoaster of the markets and more likely to let returns compound.


The coming environment will not bring more challenges - just different ones, with corresponding opportunities for those who know how to find them.

What is coming to an end is the era of the rising tide where ‘everyone’s a winner’. This is because the winning strategies are not easy to execute without the right expertise. Private credit, for example, can be risky if the investor does not have the right covenants in place (e.g., a ‘step in’ provision to take control if a developer fails to meet obligations).

As returns bifurcate, therefore, it is important to align yourself with those on the right side of the divide. Partnering with an advisory firm that has seen multiple market cycles means that you will not be caught off guard. Deep market experience, combined with access to the right sponsors and the right network in the case of PE, represents the new competitive advantage.


This presentation is provided to you by The Family Office Co. BSC(c) (“The Family Office”) for informational purposes only, and contains proprietary information that may not be reproduced, distributed to, or used by, any third parties without The Family Office’s prior written consent.

All information, figures, calculations, graphs and other numerical representations appearing in this presentation have not been audited and may be subject to change over time.  Furthermore, certain valuations (including valuations of investments) appearing in this presentation are subject to change as they may be based on either estimates or historical figures that do not reflect the latest valuation.  Although all information and opinions expressed in this presentation were obtained from sources believed to be reliable and in good faith, no representation or warranty, express or implied, is made as to their accuracy or completeness.  The information contained herein is not a substitute for a thorough due diligence investigation.  Past performance is not indicative of and does not guarantee future performance.  Exit timelines, prices and related projections are estimates only, and exits could happen sooner or later than expected, or at a higher or lower valuation than expected, and are conditional, among other things, on certain assumptions and future performance relating to the financial and operational health of each business and macroeconomic conditions.

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