Pro-growth policies and return-enhancing opportunities

In brief:

• Proposed U.S. tax reform and deregulation, coupled with AI-driven productivity advancements, are expected to boost growth, corporate profits and confidence over the next few years.
• This stronger backdrop may reinvigorate IPOs, M&A and lending activity creating supportive conditions for private equity and private credit, which may also benefit from a deregulatory environment.
• The favorable U.S. macro environment may also lift real estate, where a generational investment opportunity is emerging as valuations reach an inflection point.

Impacted asset classes: Private equity, Private credit, U.S. real estate

Pro-growth policies could spur dealmaking and exits

Source: PitchBook, J.P. Morgan Asset Management. Natural resources = Materials & resources and energy. *Data for 2024 is through 3Q24. Data based on availability as of November 30, 2024.

Tariffs, trade tensions and inflationary impacts

In brief:

• Renewed trade tensions, higher tariffs and greater economic nationalism could prompt more stubborn global inflation. 
• Allocations to infrastructure, real estate or transport can offer inflation protection.
• Transport assets may uniquely benefit from the reordering of global trade. 

Impacted asset classes: Infrastructure, Real estate, Transport 

Utilities and real estate can provide protection against inflation by passing on costs

Source: Bloomberg, Bureau of Economic Analysis, Bureau of Labor Statistics, NCREIF, SNL, AEU, J.I. Morgan Asset Management. (Left) Data represent average allowed return on equities (RoEs) for Electricity and Natural Gas Utilities and annual inflation from December 1970 through December 2023. Return on equity is lagged by 2 years. (Right) NFI-ODCE is short for NCREIF Fund Index Open End Diversified Core Equity Fund Index. It is a capitalization weighted, gross of fee, time weighted return index. Real estate performance is measured using total returns. “High inflation is defined as any year over year headline CPI reading above the historical median, while low inflation is defined as any year over year headline CPI reading below the historical median. The median y/y headline CPI for period between 4Q78-3Q24 is 2.84%. Data are based on availability as of November 30, 2024.

Divergent monetary policy and high-for-longer interest rates

In brief:

• Solid growth and stubborn inflation could result in higher policy rates and less easing than previously anticipated in some developed markets. 
• For alternatives, rates play a crucial role in the cost of capital and the fundraising climate. 
• High interest rates make leverage more expensive and may weigh on private equity company valuations.
• Higher financing costs put pressure on lower quality borrowers in private credit and real estate. 
• Hedge funds are well positioned to navigate fiscal and monetary policy shifts and the potential for increased volatility may benefit select strategies.

Impacted asset classes: Private equity, Private credit, Commercial real estate, Hedge funds, Residential real estate

Currency and interest rate volatility may provide macro hedge funds with opportunities for alpha generation

Source: CBOE, ICE BofA, HFRI, FactSet, J.I. Morgan Index Research, J.I. 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.I. Morgan Global FX Volatility Index. Three month Treasury Bill yield: Bloomberg U.S. Short Treasury (one to three months) Index. Hedge fund returns: HRFI Fund Weighted Composite (USD) Index. Data based on availability as of November 30, 2024.