For the past financial year, several markets including large capitalisation US equities and floating rate credit have experience positive tailwinds resulting in a good period for returns. As we have seen fewer uncertainties around future inflation and the peak in interest rates in many countries, this has resulted in less volatility than was experienced in 2022 and 2023. Many asset classes are continuing with the process of adjusting to the new regime of a higher cost of capital, particularly where earnings are weak and substantial amounts of financial or operational leverage are present. This has presented headwinds in areas such as small capitalisation global equities, private equity, venture capital and areas of commercial real estate. We have also seen the opportunities presented by the disruption caused by this ‘Sea Change’ as Howard Marks of Oaktree describes it. We remain excited about distressed and opportunistic credit, performing credit managed by deeply experienced fund managers, several equity markets where valuations are reasonable and earnings prospects are supportive, and in selective areas of commercial real estate. Our perspective is that the years ahead will be an exciting time to be an investor not encumbered by the sins of the past and it is for this reason that we believe that it is a period best described as A Promising Vintage.
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