Private markets have grown exponentially over the last two decades, driven by attractive long-term returns, diversification benefits, and early-stage value creation. As companies stay private longer, much of their initial growth can be realized outside of public markets, which could challenge the small-cap premium and contribute to a shift in the composition of public markets. The following newsletter examines this dynamic and potential impact on small-cap stocks.
Services Tags: Asset Allocation
As Real Estate Finds Its Bottom, Alternative Sectors Become More Prominent
Since the onset of the pandemic, the commercial real estate market has experienced significant volatility — first benefiting from a post-pandemic surge, then grappling with a sharp downturn, and now showing signs of stabilization. With the third quarter of 2024 marking the first quarter of positive returns after eight consecutive quarters of losses, the fourth quarter performance added to the case that the asset class has found a floor. This newsletter outlines recent improvements not only across traditional sectors but also an expanding set of alternative property sectors. These alternatives, which include data centers, life sciences facilities, self-storage, and senior housing, reflect the changing composition of institutional real estate portfolios and the growing emphasis on diversification beyond the traditional core sectors. We also explore drivers of demand, specific opportunities in alternative real estate, and value-added real estate.
Greg Leonberger Speaking at Titan Investors 2025 Minneapolis Institutional Exchange 10/8
On Wednesday, October 8, Greg Leonberger, FSA, EA, MAAA, FCA will be speaking at the Minneapolis Institutional Exchange hosted by Titan Investors.
Greg will be moderating the Asset Allocation in a Dynamic Market Environment panel with several investment professionals. Titan Investors is a boutique consulting firm that connects asset allocators and investment managers to share ideas, build relationships, and drive business in a focused environment. For more information, please visit their website.
New Year, New President…Same Outlook?
From an investor’s perspective, the current environment feels lot like it did twelve months ago: U.S. equity markets returned over 20% the prior year, fixed income is (still) offering attractive yields, and overall portfolio performance was positive for most programs. Nevertheless, nothing lasts forever and sentiment can shift on a dime. It is also likely that some of President Trump’s policies will have an impact on markets, with the specific impact varying by the policy and asset class.
In this edition:
- U.S. Economy and Policy Expectations
- Fixed Income: “If you liked it last year, you’ll like it this year”
- U.S. Equity: Concentration risk still looms
- Non-U.S. Equities: Positive earnings outlook, policy uncertainty
- Real Assets: Real estate bottoms, infrastructure demand robust
- Private Markets: Private equity on the rebound, private credit still compelling
Multi-Asset Credit: Taking Offense From Good to Great
Before the football season began, we authored a white paper that detailed offensive and defensive elements of a fixed income portfolio. For most investors, an aggregate (core) mandate provides defense while strategic allocations to high yield, senior secured loans, and emerging market debt (EMD) are the primary sources of offense. Relative to an aggregate benchmark, this structure has outperformed over market cycles. However, just as championship teams adjust and innovate throughout a season, so too should an investor’s portfolio.
Multi-Asset Credit (MAC) strategies are single portfolios that dynamically allocate across a broad range of global credit markets to provide higher levels of income and a diversity of fixed income exposures. These mandates can serve as a single-solution credit allocation or as a credit alpha overlay in the context of a broader credit portfolio. There is no perfect definition of MAC, but what they do offer is diversification, flexibility, and ease of access and operations. While these markets are not new, investors may be unfamiliar with the mechanics of a MAC strategy and its potential benefits.
This newsletter provides an overview of MAC, including the opportunity set, allocation structure and considerations, diversification benefits, and sample MAC manager performance.
Amy Miller Speaking at NASP 2025 Financial Services Conference 6/3
On Tuesday, June 3, Amy Miller will be speaking at the National Association of Securities Professionals (NASP) 36th Annual Financial Services Conference, “Driving Economic Impact: The New DEI,” hosted in Columbus, Ohio.
Amy will be joining a panel entitled, “The New Alternatives in Private Equity,” described as follows: Private equity asset class has evolved since its debut in the 1980s to meet the needs of a broad base of investors. New opportunities for investors include co-investments, secondaries, and continuation vehicles, among others. This panel of asset allocators and consultants will discuss what resources investors may need to effectively build and manage a private equity portfolio that includes exposure to fund-of-funds, funds, and single assets.
The conference will bring together over 500 professionals to attend sessions on global economic trends, trustee education, alternatives and institutional investing and AI’s impact on the financial services landscape, as well as networking and professional development. For more information, please visit the event webpage.
Are You Ready for Some Fixed Income?
As the leaves change to autumn and the authors cheer on their Fighting Leathernecks, fall is the perfect time for investors to reassess their fixed income portfolios. Fixed income is a hybrid security that offers both offensive and defensive properties. Much like a good football team, a fixed income portfolio needs to combine a strong offense with a solid defense.
Some strategies provide more offensive characteristics while others are more defensive. Portfolios with too much offense act like the Greatest Show on Turf. They do well when the economy is strong, but falter in down markets. Conversely, a fixed income portfolio that is overly reliant on defensive strategies will do well in a risk-off environment but will struggle in a strong economy like the Super Bowl Shufflin’ ’85 Bears.
While those were great teams, they were not a dynasty that stood up to the test of time. To build an all-weather fixed income portfolio that will perform in multiple market environments, an investor needs to balance offense and defense.
Fixed income has three primary objectives: income, diversification, and liquidity. Income, or yield, is what an investor is paid for loaning money to another entity. Fixed income helps to diversify portfolios primarily through duration. When risk assets are selling off, interest rates are generally falling. Duration is what drives fixed income prices higher in such scenarios. Finally, fixed income assets can be a source of liquidity. The weight of these qualities is dependent on if the strategy is more offensive- or defensive-minded.
This white paper outlines offensive and defensive fixed income characteristics and strategies and considerations for investors when building a “gameplan” for their fixed income allocation.
Marquette Views on 2025 Traditional Investments Outlook Featured on Nonprofit News
Published January 9, Director of Research and Partner Greg Leonberger, FSA, EA, MAAA, FCA was interviewed for Nonprofit News’ Special Report 2025: Traditional Investments Outlook (subscription required).
Greg discussed the outlook for both U.S. equities — including expectations for inflation, economic growth, and the impact of the new administration — and fixed income — including Marquette’s customized approach to portfolio construction, particularly as the rate environment has changed in recent years — in the article.
For more coverage of expectations for the year ahead, Marquette’s 2025 Market Preview webinar will be hosted on January 16 with in-depth analysis by our research team and Greg’s Quarterly Letter from the Director of Research will be published the following week.
What Does Elevated Index Concentration Mean for Active U.S. Equity Managers?
Indexing has risen in popularity over the last decade, particularly for U.S. equity investors. The fees are lower and indexing is perceived as less risky, with investors primarily seeking beta exposure to the market. However, these indices have evolved against an ever-changing economic and financial market backdrop. As a result, several unintended structural issues have emerged, particularly related to concentration risk. Understanding this evolution and how it could alter the overall exposures within a broader portfolio is critical, as these indices are not static. Notably, the composition of some indices alongside the increase in passive capital has created headwinds for active managers and helps to explain recent performance challenges.
This newsletter examines the progression of passive management, how and why U.S. equity index concentration has increased in recent years, and the effects and risks investors need be aware of across the market capitalization spectrum.
Impact of SEC Rule Changes for Money Market Funds Regulatory Update
Over the past year, the SEC has been phasing in regulatory changes for money market funds resulting from adopted amendments to Rule 2a-7. These amendments were passed on July 12, 2023, in response to the stress that money market funds faced at the start of the pandemic in March 2020 when investors rapidly pulled more than $130 billion dollars from money market funds. As a result, the Treasury and Federal Reserve had to step in to provide emergency liquidity facilities to shore up the short-term funding market. The changes primarily focus on institutional prime and tax-exempt money market funds, which have historically been more susceptible to investor runs.
This regulatory update summarizes these changes as well as which fund types are impacted.