Market review Q4 2023*
During Q4 2023 traditional asset classes delivered very strong performance, with Global Equities up 11.0% and Global government bonds up 5.8%*. Consequently, the widely used 60/40 balanced portfolio gained 8.9% during Q4. The yield on 10- year German government bonds fell from 2.8% to 2.0%, while the yield on 10-year US Treasury government bonds fell from 4.6% to 3.9%.

Alternative investments also performed well, delivering strong total returns in Q4 as spreads tightened and credit default rates remained relatively low. Corporate distressed debt performed strongly (+4.3%), followed by Structured credit (+3.2%) and Corporate direct lending (+3.0%). Private Equity returned +1.5% during Q4. Real assets saw strong bifurcation between categories during Q4, with Private Infra performing strongly (+10.0%, on a marked-to-market basis), Private Farmland delivered +2.3%, while Core Private Real Estate continued to reprice (-2.1%).

Macro-economic outlook for 2024
The US economy remains robust, but we believe that the markets’ ‘no landing’ scenario is optimistic as consumers’ purchasing power is squeezed by sticky inflation and somewhat softer labor markets. In the Eurozone, broad leading indicators and hard data continue to point to further contraction, but there are some green shoots, particularly in peripheral Europe. Given the robustness of the US economy and inflation trends, Fed policy rate cuts are being pushed further into the future. Given the weaker economic outlook in Europe, the ECB is likely to deliver several rate cuts over the course of 2024. Meanwhile geopolitical tail risks continue to build, from Ukraine to the Middle East to the South Chinese Sea. As macro-economic uncertainty seems to fade somewhat and public markets have performed well, this could drive a stabilization in valuation expectations and discount rate assumptions, and subsequently improve transaction activity. Meanwhile, strong market performance has also eased the denominator effect.

* Global Equities: MSCI ACWI Net Total return USD index; Global government bonds: ICE BofA Global government bond index (W0G1, USD hedged). Alternatives’ indices are typically released with a one-quarter time lag due to their less liquid nature. Please see important disclaimers and disclosures at the end of this document. Past performance does not guarantee future returns; your capital is at risk.