A few investment themes impacting the private markets that the Financial Advisor Solutions Team is watching closely for the year ahead, brought to you by: the year 2024!
2024
2% is the Federal Reserve’s inflation target. 2% is also the current level of inflation ex-rent, and multiple inflation figures are heading towards the Fed’s 2% target.1
Core Inflation Ex-Rents is Back to 2%...
The improvement in the inflation figures means the Fed may not need to raise rates further, which could ease pressure on fundamentals in private markets asset classes like private equity and private real estate.
2024
0% is Zillow’s observed rent growth, which has generally been an accurate leading indicator for CPI rent growth. Should the relationship continue to hold, this supports the point above that inflation is heading back toward the Fed’s 2% target and will not require further rate rises.2
...and the Pace of Rent Increases in Slowing
In our view, residential rent growth is likely to remain most positive for modern apartments with attractive amenities with higher- income tenants, particularly in growth markets.
2024
2x+ interest coverage ratios is generally what we are seeing on new direct loans to businesses in the private credit market. That healthy level of coverage is supporting loss rates at 0.96%, near the long run loss rate of 1.04%.3
2024
Small banks hold 4.4x as much commercial office real estate as larger banks and could still see trouble should values drop further and they’re forced to take possession of their collateral.4
That was fun - let’s remix 2024 a different way to include a few additional themes!
2024
20% is the average private equity secondaries price discount, which we believe is an attractive way to invest in private equity now.5
20% is also the projected global energy mix in non-renewables by 2050.6 Providing the capital to reach 80% clean energy is an opportunity that we believe comes into its own in 2024 through the infrastructure asset class.
2024
24 hours a day you would need the sun to shine and the wind to blow if you are providing energy only through solar and wind. To meet global sustainable energy targets, we need to think beyond just wind and solar, and invest in all sectors that drive the energy transition, including energy efficiency, energy storage, district heating, wastewater conversion to clean natural gas, hydrogen, biofuels, carbon extraction and sequestration, grid improvements, small scale nuclear and carbon markets.
24% of a median household income has historically gone to a new mortgage payment, vs 31% today.7 That makes owning much more expensive today vs. renting and supports for-rent multifamily housing.
Mortgage Payments as a % of Median Household Income
Affordability Index
Pair this with 61% decline in multifamily construction starts, and 82% decline in industrial starts from recent peaks, and you have some sectors of real estate that look really well supported and set up to potentially rebound in 2024.
As investors, we are thankful that 2023 turned out as benign as it did. We move into the new year reasonably constructive and continue to see supportive data for a softer landing. Here’s wishing everyone a 2024 of moderating inflation, stabilized short term rates and interesting pickings in the private markets. ?
