The Future of Alternative Investments: 2024 and Beyond feat. Shifra Ansonoff

Hello, future billionaires. Welcome back to another episode of the Invest Like a Billionaire podcast. We've got a really fun treat today. This is a returning guest. Her name is Shifra Ansonoff. She's an executive vice president at Prequin, and they are the leading provider of data on alternative assets. So if you are curious about learning about alternative investments, you've got to listen to this. She breaks down what's happened over the past few years and the kind of leading alternative asset classes like real estate, private equity, venture capital, private debt, and looking at the trends of where our capital allocators and managers, you know, shifting focus to. And we get into, you know, where opportunities are in private debt, you know, why real estate is, you know, a little bit of a standstill right now. And at the very end, we talk about where the opportunities are in real estate. So you gotta listen to the whole thing. And if you're listening to this, we definitely want to recommend you push pause and go watch this on YouTube because she goes through her slides and these slides are really illuminating and help tell the story of what they're seeing at a high level. And the last thing I'll say, just what's so cool about this is as investors, we get so focused in our little markets and even just in the US, but Prequin is tracking this data globally. So they have a really global perspective of money flows and it's just such a helpful sense to understand as an investor. With that, tune in. We know you're going to love it and enjoy the show. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. We've got one of our favorite guests and a returning guest today on the podcast, Shifra Ansinoff. And if you're new to the podcast, you may not recognize that name, and you're going to be very delighted with today's conversation. So Shiv Freshi is the global head of customer experience at Prequin. And Prequin is really like the leading global data provider on alternative investing across the world. And they just recently won an award. And Shiv can tell us a little about what that was, but she has a pretty amazing background working in very large companies and alternatives in this space and has amazing perspectives on this. And so we're really excited to bring her on and really dive into what's going on, right? There's been a lot that has changed in the past year in alternatives and want to just get the kind of really big, you know, 30,000-foot view perspective. So Shifra, thanks so much for coming on. We're really excited about this.

Thank you. So excited to be here.

Yeah. So what was the award that Precuin won recently?

Precuin was ranked number 1 in the Probitoff Survey for top benchmarking tools in the alternative space.

We love the data you guys provide. And so it's always a treat to get to have you on and share because you guys really, really know this stuff. And so we actually are going to be walking through some slides. So, you know, sometimes on these podcasts, we recommend that you view this on YouTube if you have the ability to do so, because we are going to walk through some slides. And then Shifra has graciously allowed us to make these available for our audience to download. So we're going to put a link to download those in the show notes. But you're going to want to buckle up, pull out a pen and pad, and get ready for some great data.

Invest Like a Billionaire is really about following what billionaires are doing. And they're, you know, something around 50% of the net worth of most billionaires is in alternatives. And so what Shipra's firm does is kind of track the ebbs and flows of what is working, what are investors, where is investors' appetites increasing and waning. In this alternative space. What are the big guys doing? And so this is going to be super interesting.

So let me start out. I'm going to share screen and talking about the future of alternatives. So at Precwin, we have a data scientist team and we have a model where we run projections of where we expect future fundraising themes, future trends, where AUM will be in the next 6, 7 years. And what we do is we look at recent themes in the data, macroeconomic variables, and also recent themes in our fundraising. And from a linear perspective, what we are projecting is that in spite of everything we're seeing, the headwinds in the market, alternative assets are expected to grow at 9.3% CAGR from approximately $13 trillion today in assets under management up to $23 trillion in 2027.

Wow.

Huge number.

And to confirm, so CAGR, for those that may not know, is compounded annual growth rate, right?

Yep.

So the compounded amount of capital that's increasing, and AUM is assets under management. So we want to include everybody who is maybe just joining in and wanting to get their head around this. So it's huge growth. And looking at the chart, you know, one of the things that jumps out at me besides the growth is the growth of private equity, right? Is kind of the fastest growing. Right.

Private equity is out there for sure.

VC, venture capital.

Yeah, private equity is definitely the one of the largest buckets, actually the largest. Behind that in this chart is hedge funds. But in terms of private equity is expected to grow at around a 10% CAGR, which is great. It's above the average for all alts. Actually, venture capital is the fastest growing. It's the pink portion of the bars. Yeah, I see that. You, you can see that visually. It's pretty amazing. Um, that's going to be around a 19% CAGR. And as, as fast as it is, it's slower than it was in the last few years. In the 2015 to 2021 period, we knew we had exceptional growth, and 2021 was a remarkable year in and of itself. But we do see a lot of potential in venture capital in spite of everything going on. Now, we know that recently with SVB. Yeah, who knows? There's gonna be a struggle to secure funding, but there are, I mean, I'm hearing every day of new ideas, especially early stage seems to be of interest. So you have a longer runway for growth and, you know, early stage in particular seems to be getting a lot of interest. That's the fastest growth.

And is this a global perspective?

Yes.

Like the global aggregation? So I think that's a really important thing to note too, right? Because so much of the data that we look at generally is just US only, right? And so what I love about what you guys are doing, it's not just US and US obviously leads in a lot of these categories, but it's not always the biggest, right? And it's, it's, um, there's a lot of other big, uh, drivers, um, in these, uh, categories across the, the globe.

Absolutely.

Now there's two categories here that, that I'm not a hundred percent sure what they are, so Infrastructure, natural resources. So did natural resources, I assume is like fossil fuels, those kind of things and, and mining.

Energy-based. Yep.

Gotcha. Okay. And what is infrastructure?

Infrastructure? It could be data centers, telecom, anything to do with the carbon-neutral transition, if you will. And telecom's been a big component. Infrastructure is the second fastest growing. You have a really good eye, Bob. Second fastest growing asset class that we see. Huge interest there. And what's very interesting there is where, and Ben, you'd mentioned the different markets. Typically, US in alternatives is the center of dominance, right? Where it's the center of gravity, drives the market. With infrastructure, we see a lot more interest going towards Europe-focused funds. That has really shifted. In Q4, we went to around, so 80% of the funds that closed were Europe-focused funds particularly. And we are going to see the AUM for Europe surpass that for North America for infrastructure starting in, I think, 2025. I actually have a chart on that in here. So it's really interesting to see how the markets shift. And then another interesting anecdote. So on the real estate side, which we can get into, we saw in the 2015 to 2021 time period, Europe was in the lead actually, um, from a real estate perspective when in terms of growth. But Europe's now behind the pack. Um, APAC is actually growing. There's a lot of interest proportionally in interest, um, in real estate particularly. We've seen interest in Japanese real estate with the dollar-Japanese yen rate. So with these shifts continue to happen and you've gotta pay attention to it. There's the North American market, but there's so much opportunity outside.

Very, very interesting. Well, what do you, what do you think is driving the infrastructure growth in Europe? That's kind of an interesting topic.

Yeah. You know, there's a strong emphasis on ESG and, and I feel like Europe is ahead of the curve versus North America. On ESG. And we know politically there's a lot of debate in the US on ESG. So I think that that's a huge driver. Allocators are looking to tick the boxes and say, oh wow, see, I'm allocating sustainable. So I think that's a big draw. And US will catch up over time, but it's going to take time to get there.

The other thing that jumps out at me is, and we need to probably get to some of the other slides or you're going to run out of time, but But is the natural resources because, so if you look at the EIA predictions on, you know, the need for natural resources, we need 40 times global lithium production, 40x, right? We need the same amount, you know, 20x on graphite. And, you know, so we need, and fossil fuels are clearly, you know, it's been underinvested for the last 7 years relative to what's needed according to my research. So, You know, it's interesting that you're not showing that.

You know, the energy, it's interesting 'cause we've done a lot of studies on that. And certainly there are flows to conventional and renewable energy, but they're not, what we, when we look from a risk-return perspective, we tend to see that natural resources doesn't, you're taking on a lot of risk and you're not getting a lot of bang for your buck there.

Right.

Although, you know, last year was an exceptional year. So I think people are, they shy away from that. That's from what we've seen anecdotally in the data.

That makes sense. So a lot of the bigger public companies are going to be taking the lead and yeah, I mean, yeah, driving around diesel-fueled trucks to pull junk out of the ground. It's a dirty, ugly business, right? And you know, not necessarily super high return. You know, my son is actually a gold miner and a gold exploration geologist for The largest gold mining companies in the world. So, and it's a, it's a, it's an ugly business, you know. Well, good. Let's, let's keep rolling.

Yeah, absolutely. Just to unpack a few more of the themes and then we can go through.

Okay.

Private debt is the next fastest growing asset class. And we see abundant opportunity. And as banks have shied away from lending after 2008, private debt has really made its mark and, and been building out and Even more so now, I think there are going to be more opportunities for lending, as we all know. And then, you know, in terms of the slower growing asset classes, real estate is moving at around an 8% CAGR, and then hedge funds are the slowest is what we can see here. We've seen hedge funds suffer a number of outflows starting last year. And so we're— but, you know, they move up and down with the markets. Like Q4 was actually a bit of a bounce, right? The S&P was up 7%, and you kind of tend to see hedge funds move, you know, move up a bit more when you have times like that. Something that is new in our forecast that I want to point out is we started to predict projected performance. And what we can see is what's interesting when you unpack the different asset classes, the pink bars are the exceptional period, 2018 to 2021. So you can see private equity, up at, you know, around 19% growth, right? And from a returns perspective, venture capital, 23%. If you look at even the lower boundary for venture capital, you were in positive territory, right? When you look at various vintages. But then in, you know, our predictions, we definitely see a leveling off of the returns for both private equity and venture capital. We see valuations coming down and resetting. So, you know, exits have come down, which we'll see in the numbers as well. And so, you know, all in all, it seems to be in moderation. It's still decent returns, double-digit returns, which you're not going to get from other asset classes, but it's something to be aware of. And what's interesting here in our data as well, private debt, as I mentioned, is growing and there's a lot of interest. We saw a drop-off in our data on expected returns, but it seems to be more of because there's a preponderance towards allocating to the lower risk segments of the market, like the direct lending. When you're looking at senior debt, you're expecting to see lower returns there. So that it seems to be an indication.

Yeah, it's very interesting. I've been seeing some charts, I don't know if you have data on this later, but on venture capital where a lot of, you know, follow-on later stage rounds of raising are, you know, having lower valuations than they were at the previous round and seeing that as a consistent theme. So it makes sense that you would see a pretty big tail off on venture capital returns for the next couple years. But you would also kind of expect, you know, maybe over the next 2 years returns are going to be lower. But if valuations retract significantly, you know, the vintages that start maybe in a year or 2 would actually potentially be very, very good.

Right?

So it's, Yeah. It even dialed down a little bit further in that time period.

Absolutely. And when we look at the recent vintages, so like if you look at 2019 vintage for, you know, when you look at like private equity, you're looking at a lower level of returns than you would from 2018. But what a lot of folks have done studies, I believe BlackRock came out with a study that this is a good vintage year, like in, In times of uncertainty, now there's a buying opportunity. So, you know, as long as you're judicious, you tick the boxes. I mean, there are a lot of good ideas out there in the market. You just have to be more cautious about and really check the fine print of everything.

Does Precuintrack public versus alts performance?

Well, we have the public indexes. So we could see from a risk-adjusted perspective, for instance, for hedge funds, that's a very popular way of looking at returns. We have it in our platform for some of the big indexes, much more at the index level. And we did have further in the slide deck, we do have a slide that shows the drop-off in return levels. And you can see the alts, you know, the private markets is catching up, but You don't see the drops as markedly as you see in public markets, and it's a function of a lot of things. People are waiting and riding this thing out as long as they can. We're seeing a lot of interest in continuation fund vehicles. This is like GP-led secondaries effectively. So people are trying to avoid, they don't want to sell out your interest in a way where you're going to be losing a lot. Lot of money right now. So if we can hold out as long as possible, they will and avoid resetting. And we've also seen from the public markets, when we look at our exits, IP, there's almost no IPOs. I mean, they've come down tremendously. So if we actually shift, I'm sorry that I'm going through a few slides here, but if we go to the private equity, I know you can see I have a lot of slides. You can see the tremendous drop-off in exits here, and quarter over quarter. And what happens there, it's sort of like a loop. So if you, if you're having fewer exits, then there's less money to recycle into new opportunities. And then if you have continuation fund vehicles, the same thing. The other concept that we're seeing is that a lot of allocators are re-upping with existing experienced managers that they already know because it's easier to justify to your board, okay, well, I'm going to give a new allocation to BlackRock, right? Or to Blackstone, or, you know, as opposed to going with a new manager and taking a risk right now. So what's happening is, what's a little bit scary is that we're seeing less money being recycled around because of the times that we're in right now. But Once this clears out and we're in a much better favorable environment where things can exit, we'll, we'll go up again. It's just right now things have slowed down a lot. So this is really, you can see on the left, the pie chart breaking up private capital markets in, in terms of asset buckets. So you can kind of see private equity dominates from a bucket perspective of approximately $12 trillion if we were just to count the, the private capital assets. But when we look here at, on the chart on the right, you can see the history of fund flows and you can see that 2021, certainly we had this spike and so that was across the board. But then you saw that the levels dropped off and then certain buckets like private equity had really noticeable dips in fundraising. Trends in the number of funds closed and the aggregate capital raised. So it's not surprising, not surprising at all. And in terms of, if you want, we could go into specific segments of the market.

Yeah, that'd be great.

On the venture capital side, I wanted to show this as well. You can see that deceleration as well. This is on the fundraising side. So we had the lowest level of aggregate capital that's been raised since 2015, actually, in Q4 of this year, which isn't charted. I didn't— wasn't able to fit that in the slide. Really, really low levels. And in terms of the number of funds closing as well. So, and all in 2022, we saw $201 billion raised for VC. And what that's translating to also, we see fund managers on the road longer to raise money. So there's around 5,500 funds in market, a 45% increase on what the number was a year ago because they're not reaching their targets and it's taking them longer to bring in the money. So that's something that it's very impactful. There's a lot more competition and crowding of the space in general.

And it just seems that there's just softness of demand from a deployment standpoint. I mean, that's probably what's driving most of this, right?

Mm-hmm. Absolutely. They're also holding out as well. And if we look, but here's some interesting on the infrastructure side. If you look at last year, the first half of the year was tremendous for infrastructure. We saw around $127 billion raised across 2 quarters, an average of around $60 billion per quarter. Normally the average, we average around $30 billion. A quarter when we see the aggregate capital raise. So infrastructure has been really, really hot, but then a big deceleration toward the end of the year. And it's a good, you know, it's a question that I get asked, you know, why? And it seems that the interest rates that are going up, even infrastructure, which has a bounty of opportunity, seems to be impacted by the state of the world with interest rates.

Right.

Anything that requires debt is going to be challenged because all of a sudden you've got to recalculate everything and you know, some deals don't make sense anymore when the debt's expensive, if it's a leveraged opportunity, and most are.

Yeah, most definitely. And as I mentioned, if we actually go here, this is the chart that shows that Europe fundraising will overtake North America. So you can see the pink bar is Europe, 2025. It's really going to dominate in the space, particularly $670 billion in AUM for Europe-focused versus $662.

A big driver of that was the kind of ESG growth.

Yeah, that's my take on that. Just, it's really, really fascinating right now. And if you want, we could shift to private debt. Private debt is actually one of the more, if you, from an optimism perspective, if you look at, we run an investor and fund manager survey a few times a year. And we can see private debt is the asset class that investors expect to really increase their allocations to more than other asset classes. You can see it on the left, the navy blue portion of the bar. It's really, really abundant in opportunities. And you can see that from a fundraising perspective, we did see a nice pop in Q1, Q2, Q3 in terms of the aggregate capital that's raised. Although a dip in Q4, it seems like everything more or less came down in Q4 mostly. We see the number of funds closing dropping off. So what that means is that there's more capital being raised against a smaller set of funds. Average fund sizes, what we've been seeing has actually been increasing in the space.

So one thing that, that shows this more vividly And Shifra, just to kind of pause real quick, because so, so private debt for, for, you know, at the big level, this is debt to businesses and debt to real estate.

Is that— it's, it's mid-level size businesses. Um, it could be real estate side. And the idea is it's not a bank that's lending the money, right? So it's— and, and this is what's interesting about private debt is that since 2008, when banks and were— they were cracking down from a regulatory perspective on the larger banks, for sure, you, you saw a drop-off in lending. So that created an opportunity for this space. And we've really seen that we have around $1.3 trillion in AUM for private debt today. So it's really, it's, it's a great replacement for traditional fixed income. Another thing that's interesting with private debt is a lot of the structures are floating rate. So because they're floating rate, they're less sensitive to moves in interest rates. So they are favorable, right? They have strong covenants, particularly on the senior debt side. Very, a lot more flexibility in the way you can structure them.

So even at the same time, from the return perspective, I mean, what you showed, you're not sacrificing much returns to get into private debt relative to equity, but a whole lot safer, right? Because you know, you're one notch lower on the equity, on the stock. The capital stack. So yeah, we love, we love private debt. It's our space.

Oh yeah. And, and direct lending seems to dominate when you look at the different strategies. We see the most interest there, but we also see interest in distressed, special situations has also shown some interest, but by far direct lending seems to be where most of the interest is right now.

Yeah.

To your point earlier, define direct lending.

Direct funding, that would be where you would invest directly in, you know, companies that are mid-sized and it would not require, it's not a relationship with a bank. So you see a great idea and you want some exposure to it, you can invest in a debt kind of way. You could do sponsored or non-sponsored, but there are various slices of the structure. But senior debt, the senior tranche, if you will, is most common on the direct lending side.

Gotcha. Yeah.

So in terms of what I wanted to show here is if you look at the chart on the left, you can see the big divergence between the average debt fund size for first-time managers and experienced managers. And it's been growing, and you see it in our data. Mm-hmm. If you look at Q3, the average fund size for an experienced manager, that pink bar is around $1.6 billion. And it's at an all-time high, whereas the inexperienced, the, the new managers around $400 million range. You see that big spread. And the other thing that to note, if you look at the chart on the right, when we look at the proportion of capital, we see a heavy concentration in the top 10 managers. So if you look at the navy blue portion of the line or the bar all the way to the right, it's around roughly 50%. So 50% of the capital raise is going to the big guys effectively.

Yeah. So interesting. I mean, it makes sense why there's a lot of optimism around this category because at the same time as you're showing venture capital is pulling back a little bit and right now with Banks are becoming a little bit more tight, right? They're not lending as freely as they were a year ago. It's really created a gap in the market for businesses to find that funding. And then from an investment standpoint, going a little more risk-on and going up the capital stack and getting a more senior position is favorable. So it definitely makes sense why there's a movement towards this.

Yeah, we still have some pretty big fund closes. The largest fund that closed that we saw later in the year, Clearlake Special Situations Fund that closed for $15 billion. And when we looked at the top closes, there was a good mix also of mezzanine and distress strategies. So the number of funds closed again is lower, around 30% lower. So just to give the numbers, 196 funds closed in 2022 versus 283 in the prior year. So we definitely see fewer funds, but bigger fewer funds.

Yeah, interesting.

Now in terms of private equity, unpacking that, we talked about the exit side that's dropping. And, and, and just pointing out here, IPOs, you can see that really sliver, the, the, the light, or actually the bright blue if you will, is almost nothing. Very, very little there.

So these are exits on, on existing funds, right?

Yes.

Portfolio companies.

Deals, either IPOs or trade sales where you're selling to another company, which tends to be a bigger proportion as well. Now, you would expect that with valuations where they are, that buyouts would be attractive at some point, right?

Yeah, but it's a double whammy. You've got the IPO market that's dry right now, and the IPO market, of course, it's, you know, comes and goes. But the debt also, because a lot of this is going to be purchased by debt. So the cost all of a sudden, you know, the value of you're willing to pay for a deal doesn't— it's not the same if you've got leverage for it and at high interest rates. So that's going to be depressive here as well on the exits.

Yes, most definitely. And if you look really when we look at geographic interest, you know, where, what is the region of focus for the funds? So looking at the chart on the left, if we look at developed markets, US again, region of focus primarily, but still strong interest in Europe, UK. But when you look at the developing markets, the emerging markets, if you will, there's been a strong shift away from China.

Interesting. Look at that.

Yeah. So Southeast Asia and India definitely are picking up I mean, when I spent time in Singapore even recently, and also last year, there are new funds every day, new opportunities there. It's very, very interesting, the markets. And India as well. There's a lot of businesses moving into Bangalore, a lot of emphasis on fintech. So, we acquired a space actually in Bangalore at Precwin. So, it is a really growing market, something to keep an eye on.

So just, just for those who may not be seeing us and just listening, so a year ago, November of '21, 45% of respondents said they were interested in investing in China as one of the best opportunities. Today it looks like about 17 or 18% interested. So huge drop-off in interest in investing in China, which makes a lot of sense. And one of the, One of the, one of the trends we're tracking, you know, Shifra, is the movement off of China to the US, kind of the reshoring trend. There's a massive reshoring trend. About $1 trillion was spent last year according to one economist, companies reshoring to America. And, you know, costs continue to rise overseas, right, for manufacturing and these kind of things. And so it's, you know, starting to look, it's starting to look good to, reshore. Very interesting. Yeah.

Deglobalization.

Exactly.

Yeah, absolutely. So it is also interesting to see how they shift and that's something that we look at very closely. In terms of— this was a chart I referenced where you can see the dislocation between the public and the private equity markets here. Looking at the returns and the drop-off.

And, you know, walk us through this.

This is super interesting.

Yeah. So for various sectors of the market, what we've done is we've charted, we've looked at our data, uh, and, you know, looking at portfolio companies, if you will, and the returns there. And we cohorted them by sector, and then we saw, okay, what were the returns for, uh, you know, the, the recent time period from Q1 to Q3. What we can see, the pink bars is what we see from our asset-level benchmark deal performance data. Really small drops, like you would think infotech, right? And consumer discretionary with all the drop-offs in the public markets would have much more market drops. Public equity return much, much higher. You tend to see these drops in public equities first, right? Because there's also a latency in the data, how it's even reported on the private side. but also you can kind of hold off. You can kind of stay in your position longer. You don't have to, you know, write down your debt. I mean, your— mark it down as often as you would on the public equity side. So it's just, it is fascinating. It's something you look at and you might want to question it, you know, be a bit discerning.

So just to explain what we're seeing here is, so this is returns for the first 3 quarters of '22 in just total return. And so pretty much across the board, you saw losses except in energy, which went up in the public markets. Everything else went down. And generally it was a lot better in the alternative side. And it makes sense. I mean, it's one of the things we talk about quite a bit on our show. It's the public markets have a a herd following mentality, right? A herd following component and a, right, an emotional component, right? There's a, it's narrative driven and sentiment driven and people bid up the value of an asset and then they bid down the value of an asset, right? They get, they get, it's manic and they get depressive, you know, and it flows back and forth. Whereas when you're doing alternatives, there's much less of that in the market. It's just, you're going to have a whole lot less volatility and we're seeing that here.

And you have lockup periods, longer holding periods, right? As, as well.

You, they're not liquid, so you can't, you can't act on your emotions, you know, either way.

Right.

Exactly. So I just thought that, you know, it's just something to, that might be interesting to the listeners to see that. Totally. In terms of shifting to real estate, real estate is an area of the market that where we see the most pessimism from at least our investors and fund managers surveys. And we see that alignment where both managers and investors believe that real estate is overvalued, there's room for further reduction. You can see that strongly here. And you know, from a real estate perspective, there still is a lot of opportunity. You look at the different verticals in the market, but there are challenges, right? On the retail side, on the office side, we saw, you know, a number of keys being handed back for buildings in California, San Francisco, I believe. I think the building, one of the buildings was in LA Law, like in the opening credits. So it's just, it's really amazing. People aren't, I think that's a function of the remote work. If you look at the trends, I think in California, San Francisco, it's like 30% occupancy right now of offices.

Is that nuts? I mean, yeah. So the whole real estate world, it's topsy-turvy. So very interesting. It's interesting too that here you have a sentiment of investors and managers that are very aligned, kind of in agreement that prices are going to have to come down. And of course they are, you know, so interesting.

Yeah, we've been tracking some data. This is more on the, you know, multifamily residential kind of CMBS loans. And there's, you know, a lot of concern where a lot of properties, especially in the multifamily space for the past several years, were purchased with bridge debt and floating rate debt. And with current interest rates now, as some of these loans are starting to mature, they're not going to qualify for a refinance, right? So it's, I think part of the pessimism is obviously rising interest rates decrease values, but it's also potentially some distress coming down the market. I will make one point too. I'd love to spend a little more time on the real estate kind of section here because a lot of our listeners are in real estate. And you know, oh, perfect. This is exactly how I was going to get to, if we could break down, talk about sectors.

There's no such thing as real estate, right? It's like, there's so, office is so different from multifamily, right? So I love that you're breaking it down here.

Yeah. I mean, well, you can see here, office, the pink portion is definitely waning when you look at the aggregate deal values by sector. So big, big drop-offs. And I know there's been a lot of talk. Can you repurpose buildings, right? An older office. It's not as easy as you think.

It's hard to do. There's some, you know, I saw a multifamily conversion from an office to multifamily at outside of the White House. The nearest is going to be the nearest residence to the White House. I'm like, gosh, Class A. But they spent a gob of money on that thing. And you never know if it's going to be really odd, you know, it's going to feel like a weird place, you know. But yeah.

Yeah. From the office side. Oh, I'm sorry.

I was gonna say, so on, on this chart we're looking at here, this is on new deals that are being purchased by year. Is that, is that what we're looking at?

Yeah. These are vintage years. I'm not vintage. Yeah. Yeah. The, I'm sorry, this is last year. These are the, all the deals in 2022, 2021.

Okay.

So you can see over time the aggregate deal values and, you know, like from the analytics, We talked about this a little bit last year, you know, the footprints of people going into cities. I think Ernest Analytics, they actually ran a study of the footprint of Starbucks. And you tend to see people going to the metro Starbucks Tuesday to Thursday, right? But then there's less foot traffic Monday and Friday when people tend to work remotely.

So what are the years here? Explain this. I'm not really tracking this chart. So aggregate deal size.

So yeah, so this is for 2022, the deals, the real estate deals last year. And so it, you know, so 20%, the aggregate value, the aggregate deal size, if you will, has shrunk to 20% for office.

Of new deals or existing, of all deals?

Of all deals. Of all deals. Yeah. And what we can see is that on the residential side, the blue portion, we see it increase. We know that there's still interest there. I'd love your input on residential because it is a bit challenging right now with rates. But we saw existing home sales had such a bounce in February when rates went down kind of a little bit. It's— but it is interesting. But at the same time, people who have mortgages that they're paying a low rate, do they really want to get out of that? It's a tough market right now, but we're still seeing some positive momentum there.

Exactly. There's, you know, there's still like I saw one study, I believe it was 17 million housing units short. Shortage and there's just a demand of, you know, households are being formed. There's a lot of demand. And so those households have to be formed. You're either going to rent an apartment or you're going to buy a house and that's going to go, you know, whichever is a little bit cheaper. Right. And so you're going to see demand. Then there's, you know, and then the other stat we track economic is if you look at the, like the amount of the wealth effect from net worth, you look at real incomes are still very high. And there's about 8 metrics, consumer metrics. Consumers are very flush, at least in the United States, with cash. And there's a lot of money. So people, they're going to wait a while, but there's underlying demand. There's a lot, there's structural demand that's not going away, even though, you know, now we've seen the prices just skyrocket and the costs skyrocket. So, you know, Yeah, multifamily and all residential is just going to continue to be a good area and it's one of the best historically, one of the best ways to beat inflation, right? And in fact, I looked at 5 decades worth of data and housing was the one consistent beater of inflation in every of the last 5 decades.

And I mean, it's a needs-based, I mean, one thing that what we saw was interesting in our data. So niche, which it's a smaller— it's like the dark blue portion of the bar.

Oh yeah.

We see that includes student housing, senior housing. And what we see is senior housing is a, is a long-term opportunity and it is actually doing well. So looking at the stats on population growth, the number of the elderly population is going to just increase doubling for 85 and older. Nice stats show that we're going to see going from 6.5 million to 11.8 million in 2035.

Right.

Then hitting 19 million in 2060.

Wow.

You know, one of the, one of the interesting asset classes that I was looking at last week was residential assisted living. And, you know, there's a lot, there's a lot of evidence that the buyers, consumers don't want big box assisted living, right? They want more of a smaller opportunity, but there's no way to really invest it in a large scale that I'm finding. But yeah, very interesting.

Do you have any data or any just anecdotal thoughts on, or do you guys survey managers and investors on a go-forward basis?

Right?

Because obviously right now as interest rates are higher, we're seeing a huge slowdown in transactions, right? But To your point, a lot of these deals, if you have a good solid deal that you're in, you can ride out some of the challenges on the interest rate side if you have good strong underlying fundamentals that are driving revenue and NOI growth. But do you see any particular niches or asset classes here going forward that have stronger sentiment versus others? Because one of the trends we've been following, we're very bullish on, going back to the reshoring trend, is industrial and industrial specifically for manufacturing and for warehousing. So, are you seeing any sentiment of, hey, as a whole, real estate, it's a little bit softer right now for obvious reasons, but there's going to be opportunities and where are our managers potentially looking?

Yeah, anecdotally we see a few, we actually see on the telecom side, very strong interest, data centers, 6 of the 20 largest deals in Q3 of 2022 were in the telecom sector and 4 were US-based assets. They've actually, one stat here, telecoms recorded more deals and a higher aggregate deal value in 2020 than preceding years. So even before COVID and it was really turbocharged by this movement to home working or hybrid working. So That's a huge area in terms of senior housing. It's not a massive part of the market, but we do see sentiment that it is considered recession-proof. When we looked at the great financial crisis, when you looked at that, that had— that actually tends to have a lower beta to when it— like, it's a 0.48 beta to the NCRI flagship property index. The other aspects of the market. So if we look at risk level, right, like value-added versus opportunistic versus core— so core being like the lower-risk side, right, Class A properties— we see that there's been strong interest in the value-added opportunistic segments of the market, interestingly enough, particularly for real estate. So 40% of funds closing in 2022 were on the value-added side. And this is where they're looking to refurbish. There's still that effort to retake an older, let's say, office and modernize it, have new ventilation and try to update it. If you see Hudson Yards, I think BlackRock is moving into their new part of new building. So you can see it in the city, in New York City for sure.

I'm so curious to see, you know, as we go forward and we'll obviously have to bring you back on next year to talk about what 2023 looked like, but in the past several years we saw a huge focus on value-add deals, right? And, but what we saw, and we were underwriting and doing a lot of those deals early on, or late 2021, early 2022. But as we kind of went on, the cap rates really compressed there. And so you started seeing these value-add deals, you're almost paying the future value of a stabilized asset, right? And so you're basically taking all the risk to stabilize and do the construction and take the lease-up risk, but you're paying for that all up front. And so we've actually shifted to more of the kind of core, core plus, you know, more Class A newer assets in really strong growth markets where you can kind of ride the upside on the lease growth and the population growth without taking all the operational risk because, you know, apples to apples, you're not paying that much more for what we would argue is a much lower risk asset.

And so are you seeing any of that kind of Does that make any sense? So that's interesting that you brought that up.

Go backward versus go forward. Yeah.

It's almost like you planted that one and you didn't know I was gonna say it.

Okay, perfect.

What's really cool about that, one anomaly that we saw in the data is that we're seeing that our projections is that Core and Core Plus is expected to outperform, have more returns than the, the higher-risk strategies over the next 6, 7 years. So 11% versus, say, you know, the 5, 6% range. So there's something there, right? Like, you know, the, the, the, the economics of the higher quality in these times, you know, seems to outpace what that, the risk that you're taking on.

Yeah. Hey, Shiva, in your analytics, how much does inflation play in your projections? Because inflation's a game changer, right? And all things real estate, you know, the debt is a big component. The biggest component though is inflation. Which is going to be this massive tailwind on asset prices, right? And over, I mean, you know, according to math, right? An 8% inflation rate for 10 years. Sorry, for 20 years. No, 10 years doubles the price of an asset. So, I mean, that's math. And as long as those, if those, if inflation maintains, you're going to see massive tailwinds on all things real estate, forget that, you know.

Yeah, we definitely incorporate inflation in our model for how we project. And for that reason, we've seen dampened projections. Where we've seen, we've done a lot of inflation studies, huge impact on venture capital, particularly because they're really in the cash burn when you're trying to build a business, right? You're borrowing money. The inflation is really, really harmful there. But certainly we've seen it in pockets impacting infrastructure as well and real estate.

Makes sense.

Very interesting.

Now, you know, I don't have more slides to show, but we can, you know, if you have other questions.

Fantastic.

But I did want to share for your listeners is we have a some treats. There's a QR code that, and a page we made for Invest Like a Billionaire. So there's pieces of our content, various reports if anyone is interested in downloading. And we actually have an almost daily blog that we publish called the Pre-Quint First Close. So you can get that complimentary. I could share the details after, but basically it's a an email that has like an amalgamation of different themes in the alts market.

Wow, this is awesome, Jennifer. Thank you so much. Yeah, if those that are listening, if you can click on the slides on the show notes, or if you're watching this, you can see the QR code. It'll take you to a page that they gave some treats, as she said, just for our listeners. So I'm going there right after this.

Oh cool.

I want to download it. And if you're not on their email list, you got to get on Prequin's email list. It is such valuable data. As investors, you've got to understand the trends. You got to see where things are going. And, uh, Prequin is leading the pack on this. You guys got to get involved in what they're doing. So, Shifra, this is so fun, man. This is, this is such a treat for us. We love, we love the content you guys put out.

Thank you so much. So excited to be here.

And go see Shifra at the NC REIS conference.

Yes, in April.

Go meet her in person and, uh, and cheer on. It's incredible, incredible work they're doing over there at Prequin. So helpful.

Awesome. Well, thank you so much, and we'll definitely have you back on next year for the next forecast. So this is really, really fun. Thank you so much, Shifra.