Skip to main content

Quotes of the Day

By Quotes

Daniel Kahneman

It’s frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what’s going on.

Mark Twain

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

A Macro View – Disappearing Dots Late in the Game

By Uncategorized

On Wednesday, the Federal Reserve (Fed) decided to maintain rates at their current level. More importantly, the Fed’s forward-looking expectations for rate increases (the dots) have gone from forecasting, just a couple of months ago, four rate increases in 2016, to yesterday’s forecast of just two rate increases. Interestingly enough, when the Fed raised rates in December, and targeted four increases for 2016, the futures market was predicting only a 50 bps rate rise this year, which is now what the Fed is targeting.

Currency markets quickly reacted, as the US dollar weakened, and other markets digested the news. Beyond the markets’ short term reaction, the slowdown in rate hikes raises concerns in the long term about how much dry powder the Fed and other central banks have at their disposal, given the state of the world economy. The truth is, economic growth has been slow since the massive injection of liquidity post the credit crisis, with annual GDP growth in America averaging around 2% since June of 2009. With so much liquidity injected into the system for so little an increase in economic output, the question becomes: What can central banks do if we enter another recession, considering rates are at record lows and trillions of dollars/euros/yen have already been printed?

Interestingly, Bank of America Merrill Lynch recently released a survey of fund managers in which 59% believe we are nearing the end of the game in terms of world economic growth. The signs are starting to emerge: a rapid decrease in commodity prices; concerns in the credit markets; and increased equity market volatility. Although asset prices quickly inflated after the credit crisis of 2008 due to a large injection of central bank liquidity, economic growth has not been as robust. This has exacerbated a number of social issues, ranging from increasing the wealth disparity (those with exposure to risky assets in 2009 have become much wealthier while those without continue to struggle) to reducing cash flow to older Americans who rely on “clipping coupons” to fund their retirement income needs. To paraphrase Winston Churchill, never has so much liquidity been used by so many central banks to benefit so few people. Economic growth has been slow, the wealth disparity has increased, and the reflation of asset prices has had the biggest benefit for those who already are wealthy.

In addition to these social ramifications, there is real concern over how much dry powder central banks have to fight the next recession. If we are nearing the end of economic growth, what options will they have to prop up the economy? This is a real concern, and is why some investment professionals have been lowering their long-term forecast of stock market growth. No matter how much liquidity you place in the system to re-inflate assets, stocks need economic growth for long-run appreciation. The question is: Will central banks have the tools to stimulate the economy if we slide into a recession? Many investors are concerned they will not, and that should concern us all.

EWM CIO discusses the Endowment Model of Investing in Podcast with Institutional Real Estate Inc.

By Alternative Investments, Endowment Index™

Prateek Mehrotra, CIO of Endowment Wealth Management®, was interviewed this week by Institutional Real Estate Inc.  In the discussion, Prateek talks about the history of the Endowment Model and how the Endowment Index® was constructed.  Listen to the podcast.

The podcast is for information purposes only and should not be considered personalized investment advice. Investments involve risk of loss and may fluctuate in value.  You should carefully consider all risks and costs prior to making any investment.  You cannot invest directly in an index. Indexes do not have fees.

$65 billion dry powder for secondary private equity

By Alternative Investments

There’s $65 billion in ‘dry powder.’

The secondary market for private equity is at record levels, and only getting bigger.

That’s the big takeaway of a survey of more than 70 professionals who are in the business of buying and selling stakes in existing private equity funds conducted by the private capital advisory group of Evercore Partners. From the results:

Mountain climbing: The level of dry powder (i.e., committed capital) for secondary buyers is at a record high of $65 billion, which is up from an already-sizable $56 billion in June 2015. Another $40 billion of secondary fundraising is targeted for 2016. Of the current amount, more than 80% is controlled by the top 20 buyers.

Where in the world? North America remains the most attractive region, followed by Europe and Asia.

Deal types: 39% of respondents said they would focus primarily on LP interests, 17% of directs/GP liquidity opportunities and the remaining 44% expressed no preference. In 2014, around 71% of volume was for buyout-related assets, followed by real estate (14%) and venture capital (6%).

Indebted: In 2015, leverage became more important. A quarter of deal volume was leveraged at the SPV level (compared to 17% in 2014), while LTV levels hit 40% (vs. 30%).

Crystal ball: The majority of respondents expect between $35-$40 billion in secondary volume this year, with around half saying that macro developments will be the driving factor (which is apparently separate from “public market performance”—which was the driving factor for 15% of respondents).

(Source: Fortune)

Size of Global Real Estate

By Alternative Investments

The total value of all developed real estate on the globe reached US$217 trillion in 2015, according to calculations by international real estate adviser, Savills. The analysis, published today for the first time, measures the entire developed property universe including commercial and residential property as well as forestry and agricultural land.

The value of global property in 2015 amounted to 2.7 times the world’s GDP, making up roughly 60% of mainstream global assets and representing an important store of national, corporate and individual wealth. Residential property accounted for 75% of the total value of global property.

Overall, the biggest and most important component of global real estate value is the homes that people live in, totalling US$162 trillion. The sector has the largest spread of ownership with approximately 2.5 billion households and is most closely tied with the fortunes of ordinary people. Residential real estate value is broadly distributed in line with the size of affluent populations: China accounts for nearly a quarter of the total value, containing nearly a fifth of the world’s population. Yet the weight of value lies with the West, over a fifth (21%) of the world’s total residential asset value is in North America despite the fact that only 5 per cent of the population lives there.

The trend for western nations to dominate real estate is most pronounced in commercial markets, where nearly half of the total asset value resides in North America. Europe makes up over a quarter while Asia and Australasia contain 22 per cent, leaving just 5 per cent for South America, the Middle East and Africa.

Not included in the global calculation is the value of informal neighbourhood commercial properties: workshops, workspaces, shops and small business premises which are not part of the high quality commercial real estate universe that constitutes global property markets, but which are important components of economic growth and prosperity, especially in emerging markets.  They are almost impossible to value at a global level but have huge potential for future investment as economies mature and real estate markets develop within them, adding to the global stock.

This year, for the first time, the value of agricultural land and forestry is also included in the Savills measurement of total world real estate at an estimated US$26 trillion, of which around 30% is corporately and institutionally invested. Most agricultural and forestry land is owned by non-investing entities, operators and occupiers, especially in emerging economies where this is a sector with great potential for further growth and investment.

Global real estate universe in comparison Table: globalrealestatecomparison

Breakdown of developed global real estate’s total value Table:  breakdowndevelopedrealestate

(Source: www.savills.com)

Alternative Investments AUM

By Alternative Investments

Money management tracker Preqin reported that total assets held by alternative investment managers reached $7.4 trillion globally in 2015, up 10.1% from the prior year, according to Pensions & Investments. Hedge fund industry assets rose 6.7% to $3.2 trillion in the first eleven months of 2015. Hedge funds reported net inflows totaling $71.5 billion in the first six months of 2015, but experienced net outflows totaling $4.8 billion for the five-month period ended November 2015. 

(Source: Prequin)

SEC Adopts Rules to Permit Crowdfunding

By News

Here comes crowd funding for the masses…the ultimate democratization of an institutional asset class viz. venture capital…

http://www.sec.gov/news/pressrelease/2015-249.html?utm_source=Title+III+SEC+Ruling+&utm_campaign=Title+III+Ruling&utm_medium=email

November is National Family Caregivers Month- Time to Plan for Long-Term Care

By Retirement

November is National Family Caregivers Month. Caregiving often involves providing for the needs of our older family members, friends, and neighbors. As the number of older Americans rises, so will the number of caregivers. While we take this time to recognize our caregivers, it’s also a good time to consider planning for long-term care. According to the U.S. Department of Health and Human Services, almost 70% of people over age 65 will need some type of long-term care during their lifetimes. Between the ages of 40 and 50, on average, 8% of people have a disability that could require long-term care services. The average yearly cost for long-term care in a nursing home is about $74,820 for a semiprivate room, while the average annual cost for care in an assisted-living facility is $39,516.

Now is a great time to get educated on the significance of long-term caregiving in general and the importance of planning for long-term care within your overall financial plan.
5 Questions about Long Term Care