JPMorgan Asset Sees Strong Era for Private Equity, Hedge Funds

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The current difficult market environment will create fertile ground for private equity and hedge funds to boost their performance, according to JPMorgan Asset Management.

Expected returns for cap-weighted private equity have risen to 9.80%, up 1 percentage point from the last forecasts issued Sept. 30, John Bilton, head of global multi-asset strategy, wrote in a note. The money manager’s projections “continue to be relatively aggressive for both hedge funds and private equity,” he said, and the pandemic-induced market volatility “actually reinforces our conviction that there is a good medium-term outlook for alpha generation.”

“Dry powder on private equity balance sheets can be deployed now at lower entry multiples, broadly offsetting higher debt funding costs,” Bilton wrote.

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While the coronavirus-induced turmoil is hurting the economy, Bilton doesn’t see much in the way of “first-order” changes — he doesn’t envision the recession as significantly altering potential growth in the long term.

Other forecasts in the report include:

  • Both monetary and fiscal policy will remain expansionary into the recovery, which should lead to steeper curves and reflationary pressure in the intermediate term
  • Equities are likely to be supported relative to bonds over the full extent of the 10- to 15-year forecast horizon
  • Other regions may start to catch up with the U.S. stock market in the 2020s

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