CONTRIBUTORS
Tony Davidow, CIMA®
Senior Alternatives Investment Strategist
Franklin Templeton Institute
In January we released a special episode of the Alternative Allocations podcast, focusing on our 2025 Private Markets Outlook, featuring guests from Lexington Partners, Clarion Partners and Benefit Street Partners. In this episode, Mark Steffen from the Wells Fargo Institute, shared his outlook for alternative investments for the coming year.
We began our discussion by considering the macro backdrop and how it would impact the coming year. From an economic perspective, Mark noted that “we think the soft-landing scenario is the most likely scenario at this point. And then on the inflation front, we do expect a modest pickup in inflation by year end to around 3%. So that'll be driven primarily by rising fuel costs and slowing apartment supply.”1
Mark believes that the stock market will continue to march forward, interest rates will continue to fall, and deregulation should spur growth. He indicated that while Wells Fargo remains neutral on private equity, private credit and private real estate, they do see opportunities within the asset classes. Within private equity, they believe that growth equity and small-mid buyouts look attractive. Mark also commented on the appeal of secondaries.
Within private credit, “we continue to believe the opportunity set for distressed credit special situation strategies remains robust, at least for the foreseeable future, and likely we expect that to really last into the early stages of the expected recovery in late 2025.”
While the Wells Fargo Institute remains neutral on private real estate, Mark indicated that there are improving sectors and tailwinds. “We're seeing improved operating incomes and some favorable tailwinds in select sectors.” He noted the attractiveness of industrials and data centers.
I asked Mark about his views on hedge fund strategies, and he indicated that equity-oriented strategies should do well in the coming market environment. “We favor increased exposure to equity hedge directional strategies, which we have a favorable guidance on, as well as event-driven activist strategies, which we recently upgraded from unfavorable to neutral. The rationale is straightforward as more of these equity-oriented strategies really should benefit from just the broadening of the large-cap equity rally that we saw over the recent years.”
To see our 2025 Private Market Outlook, visit Insights | 2025 Private Markets Outlook.
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Endnote
1. There is no assurance that any estimate, forecast or projection will be realized.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. Diversification does not guarantee a profit or protect against a loss.
“Secondaries” is the term related to private offerings (typically structured as partnerships, led by investment managers as the General Parter, or GP) where a new investor, or secondary buyer, purchases an existing investor’s commitment to a private equity fund and effectively becomes a replacement investor as a limited partner (LP).
An investment in private securities (such as private equity or private credit) or vehicles which invest in them, should be viewed as illiquid and may require a long-term commitment with no certainty of return. The value of and return on such investments will vary due to, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of the investments. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor’s ability to dispose of them at a favorable time or price. Past performance does not guarantee future results.