Guide to Alternatives - MARKET INSIGHTS 1Q 2020 As of February 29, 2020 - JP Morgan Asset Management
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
MARKET INSIGHTS Guide to Alternatives 1Q 2020 | As of February 29, 2020
Page reference Guide to Alternatives | 2
Alts in aggregate Private markets
3. Alternatives fundraising 27. Private equity returns and dry powder
4. Public and private market correlations 28. Private equity deals and multiples
5. Alternatives and manager selection 29. Private equity deal trends
6. Yield alternatives 30. U.S. public vs. private equity
7. Alternatives and ESG 31. Private equity exit activity
32. Private equity distributions and the secondary market
Global real estate 33. Credit returns across recent economic cycles: 2004 – 2019
8. Global real estate investment 34. U.S. direct lending risk premiums
9. U.S. real estate dynamics 35. Credit market participants and issuance
10. U.S. real estate: Office and retail 36. U.S. middle market lending: Multiples and spreads
11. U.S. real estate: Industrial 37. Loan ratings and recovery rates
12. U.S. REITs and real estate 38. Private market risks
13. U.S. public and private real estate
14. U.S. REITs sector returns Hedge funds
15. European property yields and flows 39. Hedge fund strategy returns
16. Sources of European property returns 40. Hedge funds and manager selection
17. APAC real estate: Industrial 41. Hedge fund flows
18. APAC real estate: Japan residential and Australia office 42. Hedge fund exposures
43. Hedge funds and traditional portfolios
44. Hedge funds and volatility
Global infrastructure and transport
19. Global infrastructure investment
20. Sources of global infrastructure returns
21. U.S. utilities: ROE, inflation and rates
22. Global renewable energy: Cost and investment
23. Global renewable energy: Share and sources
24. Global trade by geography and product
25. Global banks’ shipping finance
26. Global transportation dynamics
Prepared by:
David Lebovitz, Global Market Strategist, Market Insights, J.P. Morgan Asset Management
Anita Sonawane, Associate, Alternatives Solutions Group, J.P. Morgan Asset Management
Tyler Voigt, CFA, Associate, Market Insights, J.P. Morgan Asset Management
2Alternatives fundraising Guide to Alternatives | 3
Global private capital fundraising
Alts in aggregate
Billions USD
Private equity Private credit Real estate Infrastructure Natural resources
$1,077 $1,096
$1,059
97 107
$1,000 $952 109
82 94
89 98
$836
70 137 148
$800 93
$740 151
58 134
75 132 120
$646
47 107
$600 73 146 117
49 123
$502
104
$419 66 116 69
32
$400 36
27 91 72
75 628 628 595
68 541
40
$200 426 435
336
240 244
$0
'11 '12 '13 '14 '15 '16 '17 '18 '19
Source: Preqin, HFRI, J.P. Morgan Asset Management.
Fundraising categories are provided by Preqin, and represent their estimate of annual capital raised in closed-end funds. Data may not sum to total
due to rounding.
Data is based on availability as of February 29, 2020.
3Public and private market correlations Guide to Alternatives | 4
Public and private market correlations
Alts in aggregate
10-years, quarterly returns
Global Global U.S. Europe APAC Global Direct Venture Private Equity Relative
2009 - 2019 Bonds Equities Core RE Core RE Core RE Core Infra Lending Capital Equity Long/Short Value
Macro
Financial
Global Bonds 1.0
assets
Global Equities 0.3 1.0
U.S. Core RE -0.3 -0.5 1.0
real estate
Global
Europe Core RE
(Continental Europe)
-0.4 -0.3 0.6 1.0
APAC Core RE -0.3 -0.4 0.8 0.7 1.0
assets
Other
real
Global Core Infra -0.2 -0.4 0.4 0.1 0.2 1.0
Direct Lending 0.1 0.5 -0.1 -0.3 -0.3 0.1 1.0
markets
Private
Venture Capital -0.2 0.2 0.2 0.4 0.1 0.1 0.2 1.0
Private Equity 0.2 0.8 -0.3 -0.1 -0.2 -0.1 0.6 0.5 1.0
Equity Long/Short 0.2 1.0 -0.4 -0.3 -0.4 -0.3 0.6 0.3 0.9 1.0
Hedge
funds
Relative Value 0.3 0.9 -0.6 -0.5 -0.6 -0.3 0.7 0.1 0.7 0.9 1.0
Macro 0.3 0.5 -0.2 0.0 -0.2 -0.3 0.2 0.1 0.3 0.5 0.4 1.0
Source: MSCI, Bloomberg Barclays, NCREIF, Cliffwater, Burgiss, HFRI, J.P. Morgan Asset Management. RE – real estate. Global equities: MSCI AC
World Index. Global Bonds: Bloomberg Barclays Global Aggregate Index. U.S. Core Real Estate: NCREIF Property Index – Open End Diversified
Core Equity component. Europe Core Real Estate: IPD Global Property Fund Index – Continental Europe. Asia Pacific (APAC) Core Real Estate: IPD
Global Property Fund Index – Asia-Pacific. Global infrastructure (Infra.): MSCI Global Quarterly Infrastructure Asset Index (equal-weighted blend).
U.S. Direct Lending: Cliffwater Direct Lending Index. Global Private Equity: Cambridge Associates Global Private Equity Index. U.S. Venture Capital:
Cambridge Associates U.S. Venture Capital Index. Hedge fund indices include equity long/short, relative value, and global macro and are all from
HFRI. All correlation coefficients are calculated based on quarterly total return data for the period 06/30/09 – 09/30/19. Returns are denominated in
USD.
Data is based on availability as of February 29, 2020.
4Alternatives and manager selection Guide to Alternatives | 5
Private and public manager dispersion
Alts in aggregate
Based on returns over a 10 year window*
25%
21.2%
20.0%
20%
15.4%
15%
13.2%
11.8%
10.6%
10%
8.9% 8.9%
Top quartile
5% 4.1%
Median
3.3%
2.5% 2.5%
Bottom quartile
0%
-0.8%
-2.2%
-5%
Global Global U.S. core U.S. non-core Global U.S. venture Hedge
equities bonds real estate real estate private equity capital funds
Sources: Lipper, NCREIF, Cambridge Associates, HFRI, J.P. Morgan Asset Management.
Global equities (large cap) and global bonds dispersion are based on the world large stock and world bond categories, respectively. *Manager dispersion is
based on: 2Q 2009 – 2Q 2019 annual returns for global equities, global bonds and U.S. core real estate. Hedge funds are based on 4Q 2009 to 4Q 2019
annual returns. U.S. non-core real estate, U.S. private equity and U.S. venture capital are represented by the 10-year horizon internal rate of return (IRR)
ending 2Q 2019.
Data is based on availability as of February 29, 2020.
5Yield alternatives Guide to Alternatives | 6
Asset class yields
Alts in aggregate
Percent
10% 9.9% 9.9%
Equities
9% Fixed income
Alternatives
8%
7%
6%
5.2% 5.1% 5.0%
5% 4.6%
4.4%
4.2% 4.2%
4%
3.0%
3%
1.9% 1.8%
2%
1%
0.2%
0%
Source: BAML, Barclays, Bloomberg, Clarkson, Cliffwater, Drewry Maritime Consultants, Federal Reserve, FTSE, MSCI, NCREIF, FactSet, J.P. Morgan Asset
Management. Yields are as of 12/31/2019, except Direct Lending, Global Infrastructure, EMEA, APAC and U.S. Real Estate (9/30/2019). Global Transport: Levered yields
for transport assets calculated as the difference between charter rates (rental income), operating expenses, debt amortization and interest expenses, as a percentage of
equity value. Yields for each of the sub-vessel types are calculated and respective weightings are applied to arrive at the current levered yields for Global Transportation;
Preferreds: BAML Hybrid Preferred Securities; U.S. direct lending: Cliffwater Direct Lending Index; U.S. High Yield: Bloomberg US Aggregate Corporate High Yield; Global
Infrastructure: MSCI Global Infrastructure Asset Index-Low risk; U.S. Real Estate: NCREIF-ODCE Index; Global REITs: FTSE NAREIT Global REITs; International Equity:
MSCI AC World ex-U.S.; U.S. 10-year: 10-year U.S. Treasury yield; U.S. Equity: MSCI USA, Europe core real estate: IPD Global Property Fund Index – Continental
Europe. Asia Pacific (APAC) core real estate: IPD Global Property Fund Index – Asia-Pacific. Euro Govt. (7-10 yr.): Bloomberg Barclays Euro Aggregate Government –
6 Treasury (7-10Y).
Data is based on availability as of February 29, 2020.Alternatives and ESG Guide to Alternatives | 7
ESG mentions on earnings calls ESG incorporation by alternative investment funds
Alts in aggregate
Russell 3000, number of mentions, annual Billions USD
400 700
Hedge funds
Property funds and REITs
350 Private equity and venture capital funds
600
33
300
500
250
272
400
200
300
150
3
12
200
100 85
70
5 283
100 70
50
1 135 125
24 57
0 0 13
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20* 2010 2012 2014 2016 2018
Source: US SIF Foundation, Company Reports, J.P. Morgan IDS Data Science Team, J.P. Morgan Asset Management.
Environmental, social and governance (ESG). Forecasts, projections and other forward looking statements are based upon current beliefs and
expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks
associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected
or contemplated. *2020 ESG mentions are YTD.
Data is based on availability as of February 29, 2020.
7Global real estate investment Guide to Alternatives | 8
Global real estate investment
Billions USD
$350
APAC
EMEA
Real estate
$300
Americas
$250
$200
$150
$100
$50
$0
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Sources: CBRE Research, RCA (Americas), J.P. Morgan Asset Management.
APAC is Asia Pacific. EMEA is Europe, Middle East and Africa.
Data is based on availability as of February 29, 2020.
8U.S. real estate dynamics Guide to Alternatives | 9
U.S. real estate cap rate spreads U.S. vacancy rates by property type
Transactions based, spread to 10y UST, 4-quarter rolling average Percent
5% 20% Apartment Industrial Office Retail
15%
Real estate
10%
4%
5%
Dec 2019:
2.8%
0%
3% '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Average: 2.8%
U.S. real estate construction costs
Nonresidential fixed investment in structures, price index, y/y % chg.
2% 15%
10%
Dec. 2019:
5% 2.3%
1%
0%
-5%
0% -10%
'98 '01 '04 '07 '10 '13 '16 '19 '88 '91 '94 '97 '00 '03 '06 '09 '12 '15 '18
Source: NCREIF, Federal Reserve, BLS, FactSet, J.P. Morgan Asset Management.
The cap rate, which is computed as the net operating income over sales price, is the rate of return on a real estate investment property.
Data is based on availability as of February 29, 2020.
9U.S. real estate: Office and retail Guide to Alternatives | 10
Flexible office space: Inventory and penetration Mall leasing and retail sales growth
Millions of square feet, % penetration Gross leasable area, 2014-2019 retail sales growth
60 GLA (mil. sq. ft.) Retail sales growth (%) 40%
90 2.5%
Inventory (mil. sq. ft.) Penetration (%)
30%
80 50
Real estate
2.0% 20%
70 40
10%
60
30
1.5%
0%
50
20
-10%
40
1.0%
10
-20%
30
0 -30%
20
0.5%
10
0 0.0%
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Sources: CBRE, Census Bureau, J.P. Morgan Asset Management.
2020 data on inventory and penetration is an estimate. Gross leasable area (GLA) data is as of 2017.
Data is based on availability as of February 29, 2020.
10U.S. real estate: Industrial Guide to Alternatives | 11
U.S. warehouse space under construction
Millions of square feet (MSF), vacancy rate
300 12%
MSF under construction Vacancy rate
Real estate
250 10%
200 8%
150 6%
100 4%
Speculative
50 2%
Build-to-suit
0 0%
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Sources: CBRE Econometric Advisors, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
11U.S. REITs and real estate Guide to Alternatives | 12
U.S. REITs, real estate, and equities
12-quarter rolling correlations, total return
Housing bubble/
1980 “Double dip 1987 Crash/ Euro debt crisis
1
recession” S&L Crisis
Recession
0.8
Real estate
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8 Direct real estate/S&P 500 correlation
REIT/S&P 500 correlation
-1
'80 '82 '83 '85 '86 '88 '89 '91 '92 '94 '95 '97 '98 '00 '01 '03 '04 '06 '07 '09 '10 '12 '13 '15 '16 '18 '19
Source: NAREIT, NCREIF, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.
Real estate investment trusts (REITs). Indices do not include fees or operating expenses and are not available for actual investment. Past performance
is not necessarily a reliable indicator for current and future performance.
Data is based on availability as of February 29, 2020.
12U.S. public and private real estate Guide to Alternatives | 13
Composition of U.S. private and public real estate indices Data centers absorption and construction
Percent Megawatts, 2019
100%
Other*, 4.5% Other**, 3.4% Net Absorption Under Construction
Manufactured
Homes, 3.2%
90% Data Centers, Northern Virginia
Retail, 16%
Real estate
10%
80% Self Storage, 7%
Silicon Valley
70% Healthcare, 12%
Office, 33% Dallas/Ft.Worth
60% Hotels, 5%
Retail, 13%
50%
New York Tri-State
40% Office, 13%
Industrial, 20% Phoenix
30%
Industrial, 14%
20% Chicago
Residential,
10% 26% Residential,
19% Atlanta
0%
ODCE WILRESI 0 100 200 300
Source: NCREIF, Wilshire, CISCO, J.P. Morgan Asset Management.
ODCE is the NCREIF Fund Index – Open End Diversified Core Equity, which is a benchmark for U.S. core real estate. WILRESI is Wilshire US Real
Estate Securities Index, which is a benchmark for U.S. REITs. *Other in ODCE consists of hotels, healthcare, self-storage and land. **Other in
WILRESI consists of single-family homes among additional property types.
Megawatts indicates data center energy capacity.
Data is based on availability as of February 29, 2020.
13U.S. REITs sector returns Guide to Alternatives | 14
2010-2019
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Ann. Vol.
Apa rtme nts S e lf S tora ge Industria l Mfgd. Home s Mfgd. Home s S e lf S tora ge Industria l Mfgd. Home s Mfgd. Home s Mfgd. Home s Mfgd. Home s Industria l
47.0% 35.2% 3 1. 3 % 10 . 5 % 46.2% 40.6% 30.7% 24.9% 11. 4 % 4 9 . 1% 22.9% 20.9%
Re giona l Re giona l Re giona l S hopping
S e lf S tora ge Apa rtme nts Mfgd. Home s Mfgd. Home s Industria l He a lth Ca re Industria l S e lf S tora ge
Real estate
Ma lls Ma lls Ma lls Ce nte rs
34.6% 22.0% 28.2% 9.5% 39.6% 25.6% 14 . 2 % 20.6% 7.6% 48.7% 16 . 8 % 17 . 9 %
S hopping S hopping Re giona l
Mfgd. Home s Industria l He a lth Ca re Apa rtme nts O ffic e All Equity Apa rtme nts O ffic e Industria l
Ce nte rs Ce nte rs Ma lls
30.8% 20.4% 25.0% 7.4% 33.3% 16 . 5 % 13 . 2 % 8.7% 3.7% 3 1. 4 % 16 . 3 % 16 . 8 %
Re giona l S hopping
S e lf S tora ge Apa rtme nts He a lth Ca re O ffic e All Equity O ffic e S e lf S tora ge All Equity Apa rtme nts He a lth Ca re
Ma lls Ce nte rs
29.3% 15 . 1% 20.4% 5.6% 32.6% 4.7% 8.6% 5.2% 2.9% 28.7% 14 . 4 % 16 . 1%
S hopping Re giona l
All Equity He a lth Ca re S e lf S tora ge S e lf S tora ge He a lth Ca re S e lf S tora ge Industria l Apa rtme nts All Equity S e lf S tora ge
Ce nte rs Ma lls
27.9% 13 . 6 % 19 . 9 % 5.0% 3 1. 4 % 4.2% 6.4% 3.7% - 2.5% 26.3% 12 . 6 % 16 . 0 %
S hopping S hopping S hopping
Mfgd. Home s All Equity All Equity All Equity All Equity Apa rtme nts All Equity He a lth Ca re O ffic e
Ce nte rs Ce nte rs Ce nte rs
27.0% 8.3% 19 . 7 % 2.9% 30.0% 2.8% 3.7% 3.7% - 4.0% 25.0% 10 . 1% 15 . 2 %
S hopping Re giona l Re giona l
He a lth Ca re O ffic e All Equity Industria l Apa rtme nts He a lth Ca re He a lth Ca re O ffic e Mfgd. Home s
Ce nte rs Ma lls Ma lls
19 . 2 % - 0.7% 14 . 2 % - 1. 0 % 28.0% 2.6% 2.9% 0.9% - 7.0% 2 1. 2 % 9 . 1% 14 . 1%
Re giona l Re giona l S hopping
Industria l O ffic e Mfgd. Home s Apa rtme nts O ffic e O ffic e O ffic e S e lf S tora ge All Equity
Ma lls Ma lls Ce nte rs
18 . 9 % - 0.8% 7 . 1% - 6.2% 25.9% 0.3% - 5.2% - 2.7% - 14 . 5 % 13 . 7 % 8.6% 13 . 4 %
S hopping S hopping Re giona l Re giona l
O ffic e Industria l Apa rtme nts He a lth Ca re Industria l He a lth Ca re S e lf S tora ge Apa rtme nts
Ce nte rs Ce nte rs Ma lls Ma lls
18 . 4 % - 5.2% 6.9% - 7 . 1% 2 1. 0 % - 7.2% - 8 . 1% - 11. 4 % - 14 . 5 % - 9 . 1% 8.4% 13 . 3 %
Sources: FTSE NAREIT, FactSet, J.P. Morgan Asset Management.
All indices are from FTSE NAREIT. Mfgd. Homes represents manufactured homes.
Data is based on availability as of February 29, 2020.
14European property yields and flows Guide to Alternatives | 15
EU-15 property spreads by sector Capital flows by location and property type
Spread to Euro Govt. (7-10 yr.) 3Q 2019, Billions EUR
7% Paris Office €13.6
London Office €10.4
Real estate
6%
Berlin Office €4.1
5%
Munich Office €3.9
4%
Madrid Apt €3.6
3% Berlin Apt €3.0
Amsterdam
Office €2.6
2%
Amsterdam Apt €2.5
1%
Frankfurt Office €2.3
0%
Madrid Office €2.2
€0 €5 € 10
-1%
'98 '01 '04 '07 '10 '13 '16 '19 Domestic Continental Global
Sources: RCA, CBRE, J.P. Morgan Asset Management.
EU-15 is Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the
United Kingdom. Apt is apartment.
Data is based on availability as of February 29, 2020.
15Sources of European property returns Guide to Alternatives | 16
U.K. property returns France property returns
Annual returns from income and capital appreciation Annual returns from income and capital appreciation
20% 25%
20% Capital appreciation
15% Income
15%
Real estate
10%
10%
5%
5% 0%
-5%
0% -10%
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
-5%
Germany property returns
Annual returns from income and capital appreciation
-10% 25%
Capital appreciation
20%
-15% Income
15%
10%
-20%
5%
Capital appreciation
-25% 0%
Income
-5%
-30% -10%
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Sources: MSCI, J.P. Morgan Asset Management.
All returns are based on the respective MSCI IPD Global Property Index, and show one-year returns from income and capital appreciation.
Past performance is not indicative of future results. Alternative investments carry more risk than traditional investments and are recommended only
for long-term investment. Some alternative investments may be highly leveraged and rely on speculative investments that can magnify the potential
for loss or gain. Diversification does not guarantee investment returns or eliminate the risk of loss.
Data is based on availability as of February 29, 2020.
16APAC real estate: Industrial Guide to Alternatives | 17
APAC online retail sales APAC office and industrial pricing
Percent of total retail sales Yields
18% 7%
Prime Office Prime Warehouse
16%
Real estate
6%
14%
5%
12%
10% 4%
8%
3%
6%
2%
4%
1%
2%
0% 0%
China South Korea United Japan Australia New Singapore New York Seoul Singapore China Auckland Sydney Hong Kong Tokyo
States Zealand Tier I
Sources: Oxford Economics, Jones Lang LaSalle REIS, CBRE, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
17APAC real estate: Japan residential and Australia office Guide to Alternatives | 18
Japan multi-family Australia prime office
Occupancy, percent Net effective rent, index level; occupancy, percent
180 100%
Tokyo 23 Wards Osaka Nagoya Fukuoka
Net effective rent index Occupancy
2008 Tohoku Sydney NER Melbourne NER
financial crisis earthquake Sydney Occupancy Melbourne Occupancy
Real estate
100% 160
98% 140 95%
96% 120
94% 100 90%
92% 80
90% 60 85%
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Sources: Association of Real Estate Securitization, Japan Property Index, Jones Lang LaSalle, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
18Global infrastructure investment Guide to Alternatives | 19
Average annual infrastructure need
USD trillions, constant 2017 dollars
$4.0
$3.6
$3.5
$0.5
$3.0
$0.5
Infrastructure
$2.5
$2.0 $1.1
$1.5 $0.1
$0.1
$0.4
$1.0
$0.5 $0.9
$0.0
Roads Rail Ports Airports Power Water Telecom Total
Annual
spending,
1.0 0.4 0.1 0.1 1.3 0.5 0.6 4.0
% of GDP
Source: McKinsey Global Institute, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
19Sources of global infrastructure returns Guide to Alternatives | 20
Global core infrastructure returns
Rolling 4-quarter returns from income and capital appreciation
25%
Capital appreciation
Income
20%
15%
Infrastructure
10%
5%
0%
-5%
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Source: MSCI, J.P. Morgan Asset Management.
Infrastructure returns represented by the “low risk” category of the MSCI Global Quarterly Infrastructure Asset Index. Data show rolling one-year
returns from income and capital appreciation. The chart shows the full index history, beginning in the first quarter of 2009.
Past performance is not indicative of future results. Alternative investments carry more risk than traditional investments and are recommended only
for long-term investment. Some alternative investments may be highly leveraged and rely on speculative investments that can magnify the potential
for loss or gain. Diversification does not guarantee investment returns or eliminate the risk of loss.
20 Data is based on availability as of February 29, 2020.U.S. utilities: RoE, inflation and rates Guide to Alternatives | 21
U.S. utilities' average allowed RoE and interest rates U.S. utilities’ return on equity and inflation
RoE (2-year lagged), CPI % change vs. prior year, 1980-2018
Electric allowed RoE Natural gas allowed RoE
100
109
118
127
136
145
154
163
172
181
190
17
10
19
28
37
46
55
64
73
82
91
Utility bond yields 10-year Treasury rate
1
18% 25
16%
24.5 15
24
14%
13
23.5
Infrastructure
12%
Return on equity (%)
23 11
10%
22.5
8% 9
22
6%
21.5 7
4% 21
5
2% 20.5 R2 = 0.54
0% 20 3
'70 '75 '80 '85 '90 '95 '00 '05 '10 '15 0 2 4 6 8 10 12 14
Inflation (%)
Source: America’s Electric Utilities, Moody’s, SNL.com, Bloomberg, BLS, JPMAM Global Alternatives Research, J.P. Morgan Asset Management.
RoE is return on equity, which is the amount of net income returned as a percentage of shareholders’ equity. Average cost of debt is represented by
the trailing 6-month average of Moody’s utilities yields. Grey bars denote recessions
Data is based on availability as of February 29, 2020.
21Global renewable energy: Cost and investment Guide to Alternatives | 22
Cost of wind, solar, natural gas and coal Global new investment in clean energy
Mean LCOE*, dollar per megawatt hour Billions USD
$400 $450
Solar Wind Other Biofuels
$400
$350
Wind
$350
$300 Solar
Natural gas
Infrastructure
Coal $300
$250
$250
$200
$200
$150
$150
$100
$100
$50
$50
$0 $0
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Source: Lazard, Bloomberg, J.P. Morgan Asset Management.
*LCOE is levelized cost of energy, the net present value of the unit-cost of electricity over the lifetime of a generating asset. It is often taken as a
proxy for the average price that the generating asset must receive in a market to break even over its lifetime.
Data is based on availability as of February 29, 2020.
22Global renewable energy: Share and sources Guide to Alternatives | 23
Share of energy from renewable sources U.S. electricity generation by major source
% of total energy, 2018 Percent
80% Coal Natural Gas Nuclear Renewables Petroleum and Other
100%
70%
90%
60% 80%
70%
Infrastructure
50%
60%
40%
50%
30%
40%
20%
30%
10% 20%
10%
0%
0%
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Source: Eurostat, METI, BP Statistical, EIA, J.P. Morgan Asset Management.
Renewables consists of wind, hydropower, solar, biomass and geothermal.
Data is based on availability as of February 29, 2020.
23Global trade by geography and product Guide to Alternatives | 24
International shipping trade by region World seaborne trade by product
Percent share in world tonnage, percent Estimated trillion ton miles
80,000
5% Unloaded
Africa
Loaded 70,000
7% Gas
14% 60,000
Americas Container
22%
Transport
50,000
Oil and oil products
61%
Asia 40,000
41%
30,000
19%
Europe
16% 20,000
Dry bulk
1% 10,000
Oceania
14%
0
0% 10% 20% 30% 40% 50% 60% '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Source: UNCTAD, Clarksons, J.P. Morgan Asset Management.
Dry product consists of coal, ore, soybeans and bulk trade.
Data is based on availability as of February 29, 2020.
24Global banks’ shipping finance Guide to Alternatives | 25
Shipping loans volume
$100 400
Deal value (Billions USD) No. of deals
$90
350
$80
300
$70
250
Transport
$60
$50 200
$40
150
$30
100
$20
50
$10
$0 0
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Source: Dealogic, UNCTAD, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
25Global transportation dynamics Guide to Alternatives | 26
Age distribution of global shipping fleet Average age of U.S. commercial aircraft
Percent Years
14
45%
42%
13.3
40%
13
12.7
35%
12 11.8
30%
Transport
25%
22% 11
20% 10.4
15%
15% 10
13%
10% 9%
9
5%
0% 8
0 - 4 years 5 - 9 years 10 - 14 years 15 - 19 years +20 years 1993 2000 2010 2018
Source: UNCTAD, U.S. Bureau of Transportation Statistics, J.P. Morgan Asset Management.
Numbers may not sum to 100% due to rounding.
Data is based on availability as of February 29, 2020.
26Private equity returns and dry powder Guide to Alternatives | 27
Private equity IRRs Private equity dry powder
By size bucket and vintage Billions USD, by vintage year
$500
30%
$450 $434.2
25%
$400
20% $350
$315.9
Top quartile
$300
$271.6
Private markets
15%
$250
10%
$200
Median
$150
5%
$99.9
Bottom quartile $100
0% $61.7
$50 $31.6
$21.3
$12.9
$0
2000 – 2003 2004 – 2008 2009 – 2013 '12 '13 '14 '15 '16 '17 '18 '19
Source: Pitchbook, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
27Private equity deals and multiples Guide to Alternatives | 28
Global private equity deals U.S. LBOs: purchase price multiples
Share of total Equity and debt over trailing EBITDA
60% 12
2019 Equity
Average (2006-2019)
Debt
50% 10
5.6x
4.9x 4.8x
40% 8 3.5x 4.5x
3.9x 4.5x
Private markets
3.0x 4.0x 3.5x 3.4x
3.1x 3.7x
3.8x
30% 6 2.6x
3.8x
20%
4
6.1x
5.7x 5.6x 5.7x 5.8x 5.8x
5.4x 5.3x 5.3x 5.4x
5.0x 4.9x 5.1x
10% 4.6x 4.6x
2 3.8x
0%
Buyout/LBO Add-on Growth equity/ 0
platform creation '04 '06 '08 '10 '12 '14 '16 '18
Source: Pitchbook, S&P LCD, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
28Private equity deal trends Guide to Alternatives | 29
Oil prices and natural resource exits Software investment and private equity
Energy & materials exit count, WTI oil price, y/y % change % U.S. PE deals targeting software companies, software inv. % GDP
60% 20% 2.0%
WTI oil price Software % total PE deals (LHS)
Software investment % GDP (RHS) 1.9%
Energy &
40%
materials exits 18%
(2Qma, 1Q lag)
1.8%
20%
1.7%
16%
Private markets
0% 1.6%
14%
1.5%
-20%
1.4%
12%
-40%
1.3%
-60% 10% 1.2%
'11 '12 '13 '14 '15 '16 '17 '18 '19 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Sources: BEA, Pitchbook, FactSet, J.P. Morgan Asset Management.
WTI oil price is a quarterly average. Software investment is represented by nonresidential fixed investment in software.
Data is based on availability as of February 29, 2020.
29U.S. public vs. private equity Guide to Alternatives | 30
Number of listed U.S. companies* Private vs. public equity sector weights
8,500 21.5%
Tech
30.2%
8,000 14.2%
Healthcare
15.3%
7,500 9.4%
Industrials
13.5%
7,000 10.2%
Cons. Disc.
13.3%
6,500
13.1%
Financials
Private markets
2019: 8.6%
6,000 5,524
10.2%
Comm. Services
6.8%
5,500
2.8%
Materials
4.1%
5,000
5.0%
Energy
3.3% S&P 500
4,500
7.3% U.S. private equity
Cons. Staples
3.2%
4,000
6.4%
Other**
1.8%
3,500
'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
0% 5% 10% 15% 20% 25% 30% 35%
Sources: Cambridge Associates, World Federation of Exchanges, Standard & Poor’s, J.P. Morgan Asset Management.
*Number of listed U.S. companies is represented by the sum of number of companies listed on the NYSE and the NASDAQ.**Other includes real
estate and utilities. Percentages may not sum due to rounding .
Data is based on availability as of February 29, 2020.
30Private equity exit activity Guide to Alternatives | 31
Private equity exits by type Number of IPOs
Billions USD 800
$500 700
600
$450
500
400
$400
300 2019: 110
$350 200
100
$300 0
Private markets
'80 '84 '88 '92 '96 '00 '04 '08 '12 '16
$250
U.S. IPOs with negative earnings
Percent of all initial public offerings that year
$200 100%
2019: 74%
$150 80%
60%
$100
40%
$50
20%
$0 0%
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '80 '84 '88 '92 '96 '00 '04 '08 '12 '16
Sources: Pitchbook, Jay Ritter, University of Florida, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
31Private equity distributions and the secondary market Guide to Alternatives | 32
Global capital calls and distributions Secondary market transaction volume and pricing
Billions USD Secondary buyouts by year, $bn, percent of net asset value (NAV)
$600 $200 120%
Capital distributed
Secondary buyouts (LHS, $bn)
Capital called
$180 Secondary price (RHS, % of NAV)
Net distribution
110%
$400
$160
$140 100%
$200
$120
Private markets
90%
$0 $100
80%
$80
-$200
$60 70%
$40
-$400
60%
$20
-$600 $0 50%
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Sources: Preqin, Greenhill, London Business School, Pitchbook, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
32Credit returns across recent economic cycles: 2004 - 2019 Guide to Alternatives | 33
Expansion Recession
Manufacturing ISM > 50 and rising Manufacturing ISM < 50 and falling
4.0% 4.0% 2.9%
2.9% 3.0%
3.0% 2.0% 1.4%
2.2%
2.0% 0.0%
1.1% -0.3%
1.0% -2.0% -0.9%
0.2%
0.0% -4.0% -3.1%
-3.8%
-1.0% -0.3% -6.0%
10y UST 2y UST U.S. IG U.S. HY U.S. U.S. 10y UST 2y UST U.S. IG U.S. HY U.S. U.S.
leveraged direct leveraged direct
Private markets
loans lending loans lending
Late cycle cooling Turnaround
Manufacturing ISM > 50 and falling Manufacturing ISM < 50 and rising
3.0% 10.0% 9.4%
2.4% 8.1%
2.5% 2.3% 8.0%
2.0% 6.0% 4.6%
1.6%
1.4% 4.0%
1.5% 2.3%
0.9% 2.0%
1.0% 0.7%
0.0%
0.5% -2.0% -0.1%
-1.6%
0.0% -4.0%
10y UST 2y UST U.S. IG U.S. HY U.S. U.S. 10y UST 2y UST U.S. IG U.S. HY U.S. U.S.
leveraged direct leveraged direct
loans lending loans lending
Source: Institute for Supply Management, Bloomberg, Barclays, Credit Suisse, Cliffwater, J.P. Morgan Asset Management.
The ISM Manufacturing Index is a nationwide survey of purchasing executives. A reading greater than 50 indicates increased economic activity and a
reading less than 50 indicates decreased economic activity. 10y UST: Bloomberg Barclays U.S. Treasury Bellwethers (10y), 2y UST: Bloomberg
Barclays U.S. Treasury Bellwethers (2y), U.S. IG: Bloomberg Barclays U.S. Aggregate Corporate Investment Grade, U.S. HY: Bloomberg Barclays
U.S. Aggregate Corporate High Yield, U.S. leveraged loans: Credit Suisse Leveraged Loan Index, U.S. direct lending: Cliffwater Direct Lending
Index. All returns are from 12/31/2004 through 12/31/2019, except for U.S. direct lending which is through 9/30/2019.
33 Data is based on availability as of February 29, 2020.U.S. direct lending risk premiums Guide to Alternatives | 34
Direct U.S. middle market loans risk premiums
Percent
16%
14.5%
14%
2.0%
12%
1.9%
10%
2.6%
Private markets
8%
2.1%
6%
4% 3.7%
2%
2.2%
0%
Risk-free rate Broadly syndicated Directly originated, Non-sponsor Lower middle market Second lien, Total
loans upper middle market borrowers subordinated debt
Source: Cliffwater, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
34Credit market participants and issuance Guide to Alternatives | 35
U.S. leveraged loan market participants Covenant-lite loan issuance
Share of total market, percent Percent of U.S. issuance in institutional leveraged loans
Global banks Non-bank companies and funds 90%
100%
80%
90%
28%
80% 70%
54%
70% 60%
Private markets
60% 80%
84% 50%
87%
50%
40%
40%
72% 30%
30%
46% 20%
20%
10%
10% 20%
13% 16%
0% 0%
1994 2000 2006 2012 2019 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Source: Ares, S&P LCD, J.P. Morgan Asset Management.
Covenant-lite loans are a type of financing that is issued with fewer restrictions on the borrower with regard to collateral, level of income, and loan
payment terms, and fewer protections for the lender, including financial maintenance tests that measure the debt-service capabilities of the borrower.
Data is based on availability as of February 29, 2020.
35U.S. middle market: Multiples and spreads Guide to Alternatives | 36
U.S. middle market LBOs: purchase price multiples U.S. middle market and large corporate lending spreads
Deals ≤ $50M EBITDA Based on 3-month U.S. dollar LIBOR
14x L + 600
Middle Market
Equity Large Corporate
Debt
12x
L + 500
10x
7.4x
6.1x
Private markets
8x 5.3x 5.0x
5.0x
3.4x 4.3x
4.1x
L + 400
3.8x 4.1x
3.7x 3.3x
6x
3.4x
4x
L + 300
5.8x 5.6x
5.3x 5.3x 5.5x 5.5x
5.1x
4.5x 4.5x 4.6x
4.3x 4.3x
2x
3.2x
0x L + 200
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
Source: S&P LCD, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
36Loan ratings and recovery rates Guide to Alternatives | 37
Leveraged loan downgrades and upgrades Average corporate debt recovery rates
Ratio of downgrades to upgrades, rolling 12 months Volume weighted recovery rates based on trading prices
6 90%
Downgrades 2019
80%
outpacing upgrades Average (1983-2019)
5
70%
60%
4
50%
Private markets
40%
3
30%
20%
2
10%
0%
1
Upgrades outpacing
downgrades
0
'02 '04 '06 '08 '10 '12 '14 '16 '18
Source: S&P LCD, Moody’s, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
37Private market risks Guide to Alternatives | 38
U.S. LBOs volume by type: Sponsor-to-sponsor Private debt fundraising by first time funds
Percent Cumulative capital raised and fund count
$40 80
60%
Capital raised ($bn, LHS) 73
Fund count (RHS)
$35 67 70
64
50%
58
$30 60
51
40%
$25 50
43
Private markets
30% $20 37 40
30
$15 27 30
20%
19
$10 20
13
10%
$5 10
$6.5 $8.2 $12.0 $12.9 $16.6 $17.5 $24.8 $27.2 $30.1 $32.0 $34.6
0% $0 0
'02 '04 '06 '08 '10 '12 '14 '16 '18 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Source: S&P LCD, Pitchbook, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
38Hedge fund strategy returns Guide to Alternatives | 39
2010-2019
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Ann. Vol.
G loba l G loba l G loba l G loba l G loba l Eq. Ma rke t G loba l Me rge r G loba l G loba l G loba l
Distre sse d
Equitie s Bonds Equitie s Equitie s Ma c ro Ne utra l Equitie s Arbitra ge Equitie s Equitie s Equitie s
13 . 2 % 5.6% 16 . 8 % 23.4% 5.6% 4.3% 15 . 1% 24.6% 3.3% 27.3% 9.4% 13 . 2 %
Me rge r Re la tive Equity G loba l Me rge r G loba l Equity Re la tive Equity Re la tive Equity
Distre sse d
Arbitra ge V a lue Long/ S hort Equitie s Arbitra ge Equitie s Long/ S hort V a lue Long/ S hort V a lue Long/ S hort
12 . 1% 1. 5 % 10 . 6 % 14 . 3 % 4.7% 3.3% 8.5% 13 . 3 % - 0.4% 13 . 7 % 5.2% 8.0%
Re la tive Re la tive Re la tive Re la tive Re la tive HFRI Eq. Ma rke t HFRI Equity
Distre sse d Distre sse d Distre sse d
V a lue V a lue V a lue V a lue V a lue Composite Ne utra l Composite Long/ S hort
11. 4 % 0 . 1% 10 . 1% 14 . 0 % 4.0% - 0.3% 7.7% 8.6% - 1. 0 % 10 . 4 % 4.7% 6.6%
Equity Equity HFRI Eq. Ma rke t Equity Equity G loba l G loba l Re la tive HFRI
Distre sse d Distre sse d
Long/ S hort Long/ S hort Composite Ne utra l Long/ S hort Long/ S hort Bonds Bonds V a lue Composite
10 . 5 % - 1. 8 % 7.4% 9 . 1% 3 . 1% - 1. 0 % 5.5% 7.4% - 1. 2 % 7.4% 4.5% 5.5%
HFRI Eq. Ma rke t HFRI Re la tive HFRI HFRI HFRI G loba l HFRI G loba l
Distre sse d Distre sse d
Composite Ne utra l Composite V a lue Composite Composite Composite Bonds Composite Bonds
10 . 2 % - 2 . 1% 6.4% 7 . 1% 3.0% - 1. 1% 5.4% 6.3% - 1. 7 % 6.8% 4.0% 5 . 1%
G loba l G loba l G loba l Eq. Ma rke t Equity G loba l Me rge r Re la tive G loba l Me rge r Me rge r Re la tive
Ma c ro Ma c ro Bonds Ne utra l Long/ S hort Ma c ro Arbitra ge V a lue Ma c ro Arbitra ge Arbitra ge V a lue
Hedge funds
8 . 1% - 4.2% 4.3% 6.5% 1. 8 % - 1. 3 % 3.6% 5 . 1% - 4 . 1% 6.8% 3.6% 3.8%
G loba l HFRI Eq. Ma rke t Me rge r Me rge r G loba l Eq. Ma rke t Eq. Ma rke t HFRI G loba l Eq. Ma rke t G loba l
Bonds Composite Ne utra l Arbitra ge Arbitra ge Equitie s Ne utra l Ne utra l Composite Ma c ro Ne utra l Ma c ro
5.5% - 5.3% 3.0% 4.7% 1. 7 % - 1. 8 % 2.2% 4.9% - 4.7% 6.5% 2.6% 3.7%
Me rge r G loba l Me rge r G loba l G loba l G loba l G loba l Me rge r Equity G loba l Eq. Ma rke t
Distre sse d
Arbitra ge Equitie s Arbitra ge Ma c ro Bonds Bonds Bonds Arbitra ge Long/ S hort Bonds Ne utra l
4.6% - 6.9% 2.8% - 0.4% 0.6% - 3.2% 2 . 1% 4.3% - 7 . 1% 2.9% 2.5% 2.7%
Eq. Ma rke t Equity G loba l G loba l G loba l G loba l G loba l Eq. Ma rke t G loba l Me rge r
Distre sse d Distre sse d
Ne utra l Long/ S hort Ma c ro Bonds Ma c ro Ma c ro Equitie s Ne utra l Ma c ro Arbitra ge
2.9% - 8.4% - 0 . 1% - 2.6% - 1. 4 % - 8 . 1% 1. 0 % 2.2% - 8.9% 2.3% 1. 3 % 2.3%
Source: MSCI, Bloomberg Barclays, HFRI, FactSet, J.P. Morgan Asset Management.
Global equities reflect the MSCI AC World Index and global bonds reflect the Bloomberg Barclays Global Aggregate Index. All hedge fund returns are
from HFRI. HFRI Composite: HFRI FW Composite Index. Returns may fluctuate as hedge fund reporting occurs on a lag. Please see disclosure
pages for index definitions.
Data is based on availability as of February 29, 2020.
39Hedge funds and manager selection Guide to Alternatives | 40
Hedge fund manager dispersion
Based on returns from 4Q 2009 – 4Q 2019
20%
15.1%
15%
13.2% 13.0%
Top quartile 12.5%
11.5% 11.6%
10.5%
9.7%
10%
8.7%
Med.
5%
Hedge funds
3.5%
Bottom quartile 2.4%
1.2% 1.6%
0%
-0.8% -0.8% -0.7% -0.7%
-3.9%
-5%
All hedge funds Fixed income Equity market Event driven Relative value Relative value Macro total Equity hedge Emerging
relative value neutral total multi-strategy markets
Sources: HFRI, J.P. Morgan Asset Management.
Manager dispersion is based on: 4Q 2009 to 4Q 2019 monthly returns for hedge funds. Blue bar denotes median. All hedge funds: Fund Weighted
Composite Index, Equity market neutral: Equity hedge – equity market neutral, Event-driven: Event-Driven (Total), Relative value: Relative Value (Total),
Relative value multi-strategy: Relative Value Multi-Strategy, Macro total: Macro (Total), Equity hedge: Equity Hedge (Total), Emerging markets: Emerging
Markets Global.
Data is based on availability as of February 29, 2020.
40Hedge fund flows Guide to Alternatives | 41
Hedge fund net asset flow
Billions USD
$250
$200
$150
$100
$50
$0
Hedge funds
-$50
2019:
-$100
-$43.1bn
-$150
-$200
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Sources: HFRI, J.P. Morgan Asset Management.
Data is based on availability as of February 29, 2020.
41Hedge fund exposures Guide to Alternatives | 42
Sector exposure of top 50 hedge funds Computing power: transistors per microprocessor
% of total portfolio Log
18% 1.E+11
1.E+10
16% 15.6%
1.E+09
1.E+08
14% 13.2% 12.9%
1.E+07
12% 1.E+06
1.E+05
10% 1.E+04
8.8%
1.E+03
8% 7.4% 7.2% '71 '76 '81 '86 '91 '96 '01 '06 '11 '16
6%
4.9%
Global data size
Zettabytes
4.0% 3.7%
4% 50
Hedge funds
2.6% Size of global data
2% 40
0% 30
20
10
0
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Sources: FactSet, Our World in Data, IDC, J.P. Morgan Asset Management.
Zettabyte is a measure of digital information storage. One zettabyte is equivalent to a billion terabytes.
Data is based on availability as of February 29, 2020.
42Hedge funds and traditional portfolios Guide to Alternatives | 43
Hedge fund correlation with a 60/40 stock-bond portfolio*
1990 – present, monthly
1
0.8
0.6
0.4
0.2
0
Government Tech bubble
Early 1990’s shutdown(s)
-0.2 Recession/ Energy weakness,
Hedge funds
Eurozone
Fed double-dip dollar strength
tightening Global financial
-0.4
concerns crisis
9/11, Post tech-
-0.6 bubble recession
-0.8
-1
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Sources: HFRI, Standard & Poor’s, Bloomberg, Barclays, FactSet, J.P. Morgan Asset Management.
*60/40 portfolio is 60% S&P 500 and 40% Bloomberg Barclays U.S. Aggregate. Hedge funds are represented by HFRI Macro.
Data is based on availability as of February 29, 2020.
43Hedge funds and volatility Guide to Alternatives | 44
Hedge funds and volatility Macro hedge fund relative performance & volatility
Average monthly hedge fund returns by VIX level, 1990 - present VIX index level, y/y change in rel. perf. of HFRI Macro index
1.5% 70 35%
VIX
30%
1.1%
1.0% 60
25%
1.0% 0.9%
0.6% 50 20%
0.7%
0.6% 15%
0.5%
40
10%
0.5% 0.0%
0.3% 0.3% 5%
0.1% 30
0.0%
Hedge funds
-0.2% 0.0% 0%
-0.6% 20 -5%
-0.8%
-0.5% Alpha
Beta -10%
10
-0.3%
-15%
-0.8%
-0.9%
Macro hedge fund relative performance to HFRI
-1.0% 0 -20%
10-15 15-20 20-25 25-30 30-35 >35 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Source: HFRI, CBOE, MSCI, FactSet, J.P. Morgan Asset Management.
Historical beta is based on regression analysis, where the HFRI is the dependent variable and the MSCI AC World Index is the independent variable.
Monthly VIX reading is an average. Numbers may not sum to 100% due to rounding.
Data is based on availability as of February 29, 2020.
44J.P. Morgan Asset Management – Definitions Guide to Alternatives | 45
Alpha – Is the difference between an investment’s return and its expected return, given its level of beta. Hedge Fund strategies:
Accredited investor – Defined by Rule 501 of Regulation D, an individual (i.e. non-corporate) "accredited Relative Value/Arbitrage involves the simultaneous purchase and sale of similar securities to exploit
investor" is either a natural person who has individual net worth, or joint net worth with the person's spouse, pricing differentials. Strategies in this sector offer potential to generate consistent returns while minimizing
that exceeds $1 million at the time of the purchase OR a natural person with income exceeding $200,000 in directional risk.
each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a Opportunistic/Macro strategies involve investments in a wide variety of strategies and instruments, which
reasonable expectation of the same income level in the current year. For the complete definition of accredited often have a directional stance based on the manager’s global macroeconomic views.
investor, see the SEC website.
Long/Short (L/S) Equity involves long and/or short positions in equity securities deemed to be under- or
Capital commitment – A Limited Partner’s obligation to provide a specific amount of capital to a Closed-end overvalued, respectively. Exposures to sectors, geographies, and market capitalizations are often flexible
Fund (defined below) for investments. The Capital Commitment is “drawn down” or “called” over time, meaning and will change over time.
a portion of the commitment must be wired to the Closed-end Fund by a set date.
Merger Arbitrage/Event Driven strategies invest in opportunities created by significant corporate
Capital called – The amount of capital wired to a fund that is “drawn down” over time as the General Partner transactions and events which tend to alter a company’s financial structure or operating strategy.
selects investments.
Distressed Securities invests in debt and equity securities of firms in reorganization or bankruptcy.
Carried interest (aka incentive fee) – A fee paid to a fund manager for generating returns over a benchmark;
calculated as a percentage of investment profits over a hurdle rate and charged in addition to a management High watermark – The highest peak in value that an investment fund has reached. This term is often used in
fee. In Private Equity, carried interest (typically up to 20% of the profits) becomes payable once the investors the context of fund manager compensation. For example, a $1,000,000 investment is made in year 1 and the
have achieved repayment of their original investment in the fund, plus a defined hurdle rate. fund declines by 50%, leaving $500,000 in the fund. In year 2, the fund returns 100%, bringing the investment
value back to $1,000,000. If a fund has a high watermark, it will not take incentive fees on the return in year 2,
Catch-up – This is a common term of the private equity partnership agreement. Once the general partner since the investment has never grown. The fund will only take incentive fees if the investment grows above the
provides its limited partners with their preferred return, if any, it then typically enters a catch-up period in which initial level of $1,000,000.
it receives the majority or all of the profits until the agreed upon profit-split, as determined by the carried
interest, is reached. Hurdle rate – The rate of return that the fund manager must meet before collecting incentive fees.
Clawback – A clawback obligation represents the general partner's promise that, over the life of the fund, the Internal rate of return (IRR) – The dollar-weighted internal rate of return. This return considers the daily timing
managers will not receive a greater share of the fund's distributions than they bargained for. Generally, this of cash flows and cumulative fair stated value, as of the end of the reported period.
means that the general partner may not keep distributions representing more than a specified percentage (e.g., J-Curve effect – Occurs when funds experience negative returns for the first several years. This is a common
20%) of the fund's cumulative profits, if any. When triggered, the clawback will require that the general partner experience, as the early years of the fund include capital drawdowns and an investment portfolio that has yet
return to the fund's limited partners an amount equal to what is determined to be "excess" distributions. to mature. If the fund is well managed, it will eventually recover from its initial losses and the returns will form a
Closed-end fund – A fund that has a finite capital raising period and stated term (i.e. 5 years, 10 years, etc.). J-curve: losses in the beginning dip down below the initial value, and later returns show profits above the initial
Clients will have the ability to commit to the fund during the set fundraising period, after which point the fund level.
will be closed to new investors. Unlike an open-ended fund, there is limited flexibility on when a client may K-1 – Tax document issued for an investment in partnership interests to report your share of income,
invest and there is no liquidity/redemptions. Clients who invest are obligated to remain in the fund for the deductions and credits. (Note that Private Investments generally issue a Schedule K-1 instead of a Form 1099
duration of the term; they will be required to fulfill capital calls during the stated commitment period and will for tax reporting. K-1s may at times be issued later than 1099s, requiring investors to file for an extension).
receive periodic distributions based on underlying monetization of investments. Limited partner – An investor in a Limited Partnership, which is a form of legal entity used for certain hedge
Commitment period – The period of time within which the fund can make investments as established in the funds, private equity funds and real estate funds.
Limited Partnership Agreement (“LPA”), meaning the governing document, for the fund.
Management fee – Fee paid to a fund manager for managing the fund; typically calculated as a percentage of
Direct co-investment – An investment made directly in a single underlying asset of a fund. Example: The assets under management.
General Partner elects to invest in an operating company alongside a fund.
Mezzanine finance – Loan finance that is half-way between equity and secured debt, either unsecured or with
Dispersion – Difference between the best-performing and worst-performing strategies. junior access to security. A mezzanine fund is a fund focusing on mezzanine financing.
Distressed – A financial instrument in a company that is near or is currently going through bankruptcy. This Multiple of Invested Capital (MOIC) – Calculation performed by adding the remaining (reported) value and
usually results from a company's inability to meet its financial obligations. As a result, these financial the distributions received (cash out) and subsequently dividing that amount by the total capital contributed
instruments have suffered a substantial reduction in value. Distressed securities can include common and (cash in).
preferred shares, bank debt, trade claims (goods owed) and corporate bonds. Net asset value (NAV) – This is the current fair stated value for each of the investments, as reported by the
Distributions – The total proceeds distributed by the fund to the Limited Partners, which may include both administrator of the fund.
return of capital and gain distributions.
Net IRR – The dollar-weighted internal rate of return, net of management fees and carried interest generated
General partner – The managing partner of a Limited Partnership. The General Partner is managed by the by the fund. This return considers the daily timing of all cash flows and the cumulative fair stated value, as of
asset management team responsible for making fund investments (i.e., the intermediary between investors the end of the reported period.
with capital and businesses seeking capital to grow).
Gross IRR – The dollar-weighted internal rate of return, before management fees and carried interest
generated by the fund.
45J.P. Morgan Asset Management – Definitions Guide to Alternatives | 46
Open-ended fund – As it relates to private alternatives (not mutual fund structure), an open-ended fund is a
fund that has no stated term or maturity and allows clients to invest and redeem on an ongoing basis. The
frequency of investments (aka subscriptions) and / or redemptions may vary. Redemptions from open-ended
private alternative funds generally require advance notice in writing.
Pari Passu – At an equal rate or pace, without preference.
Portfolio company – A business entity that has secured at least one round of financing from one or more
private equity funds. A company in which a given fund has invested.
Post-money valuation – The valuation of a company immediately after the most recent round of financing.
For example, a venture capitalist may invest $3.5 million in a company valued at $2 million “pre-money”
(before the investment was made). As a result, the startup will have a post money valuation of $5.5 million.
Pre-money valuation – The valuation of a company prior to a round of investment. This amount is determined
by using various calculation methods, such as multiples to earnings or comparable to other private and/or
public companies.
Preferred return – Also known as Hurdle Rate.
Private equity – Equity capital invested in a private company through a negotiated process.
Primary investment – An investment made in a newly formed limited partnership.
Real estate investment trust (REITs) – Stocks listed on an exchange that represent an interest in a pool of
real estate properties.
Realized value – The amount of capital extracted from an investment.
Reported/remaining value – The current stated value for each of the investments in a fund, as reported by
the General Partner of the fund.
Return on equity (RoE) - Amount of net income returned as a percentage of shareholders' equity.
Secondary market investment – The buying and selling of pre-existing investor commitments.
Seed money – The first round of capital for a start-up business. Seed money usually takes the structure of a
loan or an investment in preferred stock or convertible bonds, although sometimes it is common stock. Seed
money provides startup companies with the capital required for their initial development and growth. Angel
investors and early-stage venture capital funds often provide seed money.
Tax documents – See K-1.
Total value – The combination of market value and realized value of an investment. Shows the total worth of
an investment.
Unfunded commitment – Money that has been committed to an investment but not yet transferred to the
General Partner.
Venture capital – A specialized form of private equity, characterized chiefly by high-risk investment in new or
young companies following a growth path in technology and other value-added sectors.
Vintage year – The year of fund formation and first draw-down of capital.
Write-down – A reduction in the value of an investment.
46J.P. Morgan Asset Management – Risks & disclosures Guide to Alternatives | 47
The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support
investment decision-making, the program explores the implications of current economic data and changing market conditions.
The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to
participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market
conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment
decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and
accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available
relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation
agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results
J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.
To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected,
stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy.
This communication is issued by the following entities:
In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’
use only, by local J.P. Morgan entities, as the case may be.; in Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in
all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan
Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the
following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management
Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), which this advertisement or
publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts
Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration
number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset
Management (Australia) Limited (ABN 55143832080) (AFSL 376919). For all other markets in APAC, to intended recipients only.This communication is issued by the following entities: in the United Kingdom by JPMorgan
Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JPMorgan Asset
Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No.
197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; in Taiwan by
JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type
II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No.
330”); in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by
Banco J.P. Morgan S.A.; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in the United States by J.P. Morgan Institutional Investments, Inc. or JPMorgan Distribution Services,
Inc., both are members of FINRA; J.P. Morgan Investment Management, Inc. or J.P. Morgan Alternative Asset Management, Inc.
Copyright 2020 JPMorgan Chase & Co. All rights reserved.
Unless otherwise stated, all data are as of February 29, 2020 or most recently available.
0903c02a8233e721
47You can also read
