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Over the last sixty years, private equity investing has developed from the original leveraged buyout and venture capital deals (once the unproven territory of financial pioneers) into a tried and tested investment philosophy. Opportunity for investing in the asset class has grown considerably, with a multitude of strategies available across all stages, sectors, and geographies.

Investors should not design portfolios to survive markets on average, but rather to survive every day and, most importantly, the worst days. As Benjamin Graham said, “the essence of portfolio management is the management of risks, not the management of returns.” At the core of a robust portfolio construction framework is to take a risk conscious approach—where investors must bear risks intelligently.

Despite a weak economy, global financial markets have rebounded, liquidity has been restored, and investors are reentering the markets. Given the risk of a second wave of COVID-19 and other factors, is the stock market being overly optimistic about the growth outlook over the next year?

The Golden Age of Monetary Policy (1980-2019) has ended and the Post-Monetary Era has begun. This episode explores the consequences of the COVID pandemic's dramatic impacts on the economy and financial markets.

The current-hedging strategies have become increasingly popular as investors seek higher returns and diversification. But when the strategy is applied to emerging market portfolios, it is an entirely different ball game. If you are considering implementing the strategy, consider that it might not be worth playing due to the time and expense required.

As family offices have grown in number, size and sophistication, they have increasingly looked to invest directly. Largely, the pursuit of direct investing opportunities has been driven by several factors, including the desire for increased control, better alignment of interests, reduced fees and expenses, and higher returns. While the appeal of direct investing is clear, building a robust investment process and team to successfully source, conduct due diligence, and execute on the opportunities is a challenging endeavor.

In an industry that relies on speed and innovation to close deals and drive returns for investors, the absence of face-to-face meetings amid the coronavirus pandemic is one reason the M&A activity in the private equity sector has had the most sudden drop-off since the Great Recession. Now private equity firms must transform quickly, and innovative practices are needed to drive more lucrative deals.

Equity markets have priced in an optimistic scenario of earnings recovering to pre-COVID-19 levels by the end of 2021—a V-shaped recovery. While it is within the realm of possibility, there is considerable risk to this scenario. We consider what conditions could support a V-shaped recovery, and circumstances under which other, more gradual recoveries would likely prevail. We also explore some possibilities about how COVID-19 will change behavior and demand preferences over time.

The coronavirus pandemic hasn’t slowed private equity firms’ interest in putting their cash to work in distressed firms. Although deal activity has been down, general partners in private equity firms are still searching for value wherever they can find it. At the same time, the declining valuations have created a push and pull in the private equity market of whether to sell or hold.

When forecasting any investment assumptions, it is important to take a look at the factors that shaped the past decade and those that will influence markets moving forward. From that vantage point, this year’s Capital Market Assumptions report provides strategic asset allocation models and shifts based on shorter-term market opportunities.