Top 10 Posts of 2024: Private Markets, Long-Term Stocks, Cap Rates and Howard Marks

Asset owners have significantly increased allocations to private markets over the past two decades, driven largely by the mistaken belief that returns on private debt and equity are orders of magnitude higher than those on public markets. What makes most investors believe that the performance of private equity funds is so obvious? In the first of his three-part series, Dr. Ludovic Falipeausaid the use of internal rates of return (IRR) since inception and media reporting were to blame.
This is the third in a three-part series Edward Macquarie This challenges the conventional wisdom that stocks always outperform bonds over the long term and that a negative correlation between bonds and stocks leads to effective diversification. In it, McQuarrie draws on his financial analysts magazine Essay analyzing U.S. stock and bond records since 1792.
The relationship between cap rate (capitalization rate) and interest rates is more nuanced than it appears at first glance. Understanding their interactions is the cornerstone of real estate investment analysis. In this article, Charles de Andrade, CAIAand Soren Godberson Dissect historical data and discuss current and future opportunities.
Risk is not just a matter of volatility. In his new video series, How to think about risk, Howard Marks A deep dive into the complexities of risk management and how investors should think about risk. He emphasizes the importance of understanding risk as the possibility of loss and mastering the art of asymmetric risk-taking, where the potential benefits outweigh the disadvantages. With the help of artificial intelligence (AI) tools, we summarize key lessons from the Marks series to help investors improve their approach to risk.
Private equity portfolio companies are approximately 10 times more likely to go bankrupt than non-private equity companies. Granted, the fact that one in five companies goes bankrupt doesn’t necessarily guarantee failure, but it’s a shocking statistic. Understanding the worst-case scenarios in private equity requires taking personal and professional action. We need to monitor specific and recurring activities that benefit the operator and not others. Alvin Ho, PhD, CFA, and Jenny Huang, CFAsharing strategies gleaned from a fireside chat with Brendan Ballou hosted by the Hong Kong CFA Institute.
Will the billionaire’s son continue his inherited wealth? If history is any guide, apparently not. In fact, there is strong evidence that most “rich households” will become poorer over a few generations. Some of the reasons for this are systemic, but the majority of factors that contribute to the decline in family wealth from generation to generation is heir selection, writes Rafael Pallone, CFA, CAIA, CFP.
Traditional investment methods assume that investors have equal access to market information and make rational, calm decisions. Behavioral finance challenges this by recognizing the role of emotions. But many investors lack the ability to quantify and manage these emotions. They strive to maintain investment exposure through the ups and downs of market cycles. In this article, Stephen Campisi, CFAintroduces a holistic asset allocation process that manages the phenomenon of regret risk by considering each client’s willingness to maintain an investment strategy throughout market cycles.
Hedge funds have become an integral part of institutional portfolio management. They account for about 7% of public pension assets and 18% of large endowment assets. But are hedge funds good for most institutional investors? Richard M. Ennis, CFAfound that since the global financial crisis (GFC), hedge funds’ alpha values have been negative and their beta values have been light. In addition, by allocating to diversified hedge fund pools, many institutions have unknowingly reduced their holdings of stocks. He proposed a targeted approach to justifying small allocations to hedge funds, citing new research that has fueled debate among academics about the merits of hedge fund investing.
Robert Shiller’s Cyclically Adjusted Price to Earnings (CAPE) ratio is approaching all-time highs. In fact, CAPE’s current value has only been exceeded twice since 1900. Investment professionals know that while CAPE has historically tended to predict stock market returns, it is not a reliable market timing tool. Mark Vandetti, CFAshared evidence that CAPE changed in the 1990s and that mean-reversion concerns may be misplaced.
After World War II, the portfolios of U.S. institutional investment plans began to grow rapidly. As of 2021, the total assets held by U.S. public and private pension funds alone exceed $30 trillion. Much like their predecessors in the mid-1900s, the trustees charged with overseeing these assets have limited time and varying levels of expertise. This forces them to rely on advice from employees and non-discretionary investment advisers. Mark J. Higgins, CFA, CFPreveals a particularly harmful bias among investment advisers that is often masked by false claims that their advice is free of conflicts.
