Key Takeaways
- • J.P. Morgan Asset Management's Jared Gross projects a compound return of 8.1% for core real estate and 10.1% for value-add real estate this year, both above his return forecasts for U.S. equities and fixed income.
- • Gross forecasts a 9.9% compound return for private equity, while noting that these funds typically tie up capital for seven to 10 years.
- • The S&P 500 rose more than 20% in each of the last two years, and investment-grade and high-yield bond spreads are negligible, prompting investors to seek diversification.
- • Mercer's Rich Nuzum notes private credit appeals for its observable starting yield and defined returns, but warns that loan portfolio problems could affect outcomes.
- • Goldman Sachs Asset Management's Alexandra Wilson-Elizondo cautions that commercial real estate faces pockets of stress and that popularity has pushed private credit prices higher.
Summary
Asset owners and fund managers are increasing allocations to alternative investments, including real estate and private credit, as they seek to diversify portfolios amid uncertainty about the U.S. and global economic outlook and the potential for returns in public stock and bond markets, according to Chief Investment Officer. The S&P 500 surged more than 20% in each of the last two years, bond performance improved, and the spread between investment-grade corporate bonds and high-yield debt is negligible. Meanwhile, inflation ticked higher in January, consumer confidence has fallen over the last two months, and the potential effects of the administration's tariff and immigration policies remain significant unknowns.
Jared Gross, head of institutional and portfolio strategy at J.P. Morgan Asset Management, cited 2022 as a reminder that stocks and bonds can decline together, a risk investors remain aware of in 2025. He highlighted real estate as attractive for rebalancing because prices have fallen, allowing investors to buy at a discount. Gross projects a compound return of 8.1% for core assets such as leased office, retail, residential and industrial buildings, and 10.1% for properties requiring renovation or repositioning. He also pointed to transportation assets such as cargo ships and natural gas carriers for their steady income and low volatility. Alexandra Wilson-Elizondo, co-head and co-CIO of multi-asset solutions at Goldman Sachs Asset Management, said real estate requires a more nuanced approach given pockets of commercial real estate issues, though she sees creative value in the sector.
Gross also suggested earmarking assets for private equity, which typically locks up capital for seven to 10 years. He forecasts a 9.9% compound return for the asset class this year. Rich Nuzum, executive director of investments and global chief investment strategist at Mercer, noted that alternatives are often illiquid and complex. He said private credit attracts investors because it offers a set return anchored by an observable yield, though deteriorating loan portfolios could hurt outcomes. Some private credit funds allow periodic withdrawals, but investors may face delays if other limited partners have already received distributions, and funds may deploy capital less aggressively than possible. Wilson-Elizondo praised private credit for spreading risk across sectors, but noted that its popularity has raised prices.
Nuzum also said some sophisticated investors are holding cash alongside derivative overlays that replicate exposure to a market-weighted public benchmark, preserving liquidity without sacrificing market exposure. Many asset owners are also building governance structures that allow them to act quickly on opportunities during a downturn.
Jared Gross, head of institutional and portfolio strategy at J.P. Morgan Asset Management, cited 2022 as a reminder that stocks and bonds can decline together, a risk investors remain aware of in 2025. He highlighted real estate as attractive for rebalancing because prices have fallen, allowing investors to buy at a discount. Gross projects a compound return of 8.1% for core assets such as leased office, retail, residential and industrial buildings, and 10.1% for properties requiring renovation or repositioning. He also pointed to transportation assets such as cargo ships and natural gas carriers for their steady income and low volatility. Alexandra Wilson-Elizondo, co-head and co-CIO of multi-asset solutions at Goldman Sachs Asset Management, said real estate requires a more nuanced approach given pockets of commercial real estate issues, though she sees creative value in the sector.
Gross also suggested earmarking assets for private equity, which typically locks up capital for seven to 10 years. He forecasts a 9.9% compound return for the asset class this year. Rich Nuzum, executive director of investments and global chief investment strategist at Mercer, noted that alternatives are often illiquid and complex. He said private credit attracts investors because it offers a set return anchored by an observable yield, though deteriorating loan portfolios could hurt outcomes. Some private credit funds allow periodic withdrawals, but investors may face delays if other limited partners have already received distributions, and funds may deploy capital less aggressively than possible. Wilson-Elizondo praised private credit for spreading risk across sectors, but noted that its popularity has raised prices.
Nuzum also said some sophisticated investors are holding cash alongside derivative overlays that replicate exposure to a market-weighted public benchmark, preserving liquidity without sacrificing market exposure. Many asset owners are also building governance structures that allow them to act quickly on opportunities during a downturn.
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