Overview              Executive Summary              Matrices

IncludedImage

ALTERNATIVE STRATEGY ASSUMPTIONS

IN BRIEF

Long-term return assumptions for alternatives are generally consistent with last year’s outlook, except for an alpha upgrade within private equity. Expected returns for alternatives remain attractive relative to those for public markets. Our 2019 assumptions, however, reflect methodological changes. Most notably, all assumptions are now available net of fees and, except for commodities, on a levered basis.A

Private equity >

Direct lending >

Hedge funds >

Real estate >

Infrastructure >

Commodities >

READ FULL ARTICLE


Private equity:

PE provides the sole meaningful return increment vs. last year’s estimates. Increasing alpha opportunities driven by disruptive innovation, geographic expansion and ample exit options are expected to offset a mixed public equity return outlook, high purchase price multiples and sizable asset flows.

SELECTED ALTERNATIVE STRATEGIES RETURN ASSUMPTIONS (LEVERED,A NET OF FEES, %)

IncludedImage

Direct lending:

Our methodology is enhanced to more accurately reflect how investors access the strategy. After netting out fees, the increase from manager leverage more than offsets the anticipated decline from structural trends in direct lending.

SELECTED ALTERNATIVE STRATEGIES RETURN ASSUMPTIONS (LEVERED,A NET OF FEES, %)

IncludedImage

Hedge funds:

Return assumptions are unchanged from 2018. A more fundamental, less macro-driven environment, fee reductions and interest rate normalization are expected to counter the headwinds of industry size, competition and absolute fee levels.

SELECTED ALTERNATIVE STRATEGIES RETURN ASSUMPTIONS (LEVERED,A NET OF FEES, %)

IncludedImage

Real estate:

Core return assumptions (unlevered) are up marginally in the U.S. and down in Europe ex-UK, the UK and Asia, reflecting the stage of the investment cycle and trailing year price performance in each region. For value-added, we introduce an assumption further out on the risk curve and incorporate leverage. REIT returns are based on the underlying real asset outlook adjusted by sector, leverage and price-to-NAV differentials.

SELECTED ALTERNATIVE STRATEGIES RETURN ASSUMPTIONS (LEVERED,A NET OF FEES, %)

IncludedImage

IncludedImage

Infrastructure:

The outlook for infrastructure equity remains strong, despite a marginal reduction in this year’s assumptions due to higher recent valuations and hence a less robust valuation impact. The infrastructure debt return estimate is moderately increased while its credit quality is slightly reduced.

SELECTED ALTERNATIVE STRATEGIES RETURN ASSUMPTIONS (LEVERED,A NET OF FEES, %)

IncludedImage

Commodities:

Return assumptions are reduced to reflect an exuberant energy market over the past year and the introduction of standard industry fees across multiple vehicle types. For gold, we project a 25 basis point premium to broad commodities.

SELECTED ALTERNATIVE STRATEGIES RETURN ASSUMPTIONS (LEVERED,A NET OF FEES, %)

IncludedImage

Source: J.P. Morgan Asset Management; estimates as of September 30, 2017 and September 30, 2018.
A All 2019 return assumptions incorporate leverage, except for commodities, where it does not apply.
B The private equity composite is AUM-weighted: 60% large cap and mega cap, 30% mid cap and 10% small cap. Capitalization size categories refer to the size of the asset pool, which has a direct correlation to the size of companies acquired, except in the case of mega cap.

C 2018 results for direct lending (not shown) were gross of fees and did not include leverage. See strategy class discussion for details.
D The diversified assumption represents the projected return for multi-strategy hedge funds.
E The conservative assumption represents the projected return for multi-strategy hedge funds that seek to achieve consistent returns and low overall portfolio volatility by primarily investing in lower volatility strategies such as equity market neutral and fixed income arbitrage.

F The 2018 results for real estate (not shown) did not include leverage. See strategy class discussion for details.
G The 2018 results for commodities (not shown) were gross of fees. See strategy class discussion for details.

RETURN TO TOP
 

VIEW OTHER ASSUMPTIONS

Examine our return projections by major asset class, their building blocks and the thinking behind the numbers.
 
 
 

2019 Long-Term Capital Market Assumptions

Download Full Report >