We are excited to share with you the first Keystone Market Update, our data-driven update on the macro environment and private markets.
The dominant narrative in private markets is the negative feedback loop that has caused significant allocation issues for institutional investors and suppressed deal activity (for more, see our latest piece, Navigating the PE Fundraising Cycle). Investors are concerned NAVs are overvalued, and we believe they are correct. High valuations paired with low growth prospects means that future unlevered returns should be low, which, combined with a high cost of debt, is a recipe for a challenging return environment. Until the growth narrative changes, valuations come down, debt gets cheaper and/or monetary policy becomes very accommodating, private markets should be choppy.
We are also excited to introduce our proprietary Arctos NOWCASTs that produce real-time estimates of private markets activity that we use to help guide our views and measure market sentiment. These are forecasts of current, and very near-term, activity for data that is released on a lag, as is common in private markets. Our proprietary models capture the interaction between past values of major macro, public market, and private market variables with current values of private market metrics we care about: NAV growth, contribution rates, distribution rates, cash flow activity, fundraising and the secondary return environment. We believe an objective model of the present and near-future can help every investor and manager remain grounded and make better decisions, despite the “narrative noise” of the moment, which is often biased, momentum-driven, or influenced by a specific agenda.
You can find the piece here (Password: Arctos1!). Please reach out with any questions.