In this episode, co-hosts Bob Fraser and Ben Fraser sit down with returning guest, Shifra Ansonoff, the Global Head of Customer Experience at Preqin, to discuss the latest global trends and developments in private equity, venture capital, real estate and other alternatives. She shares her insights on emerging and niche asset classes, such as infrastructure investing and private debt, and the global trends driving growth in these areas. Whether you’re a seasoned investor or new to the field, this episode is a must-listen for anyone interested in staying up-to-date on the latest trends and developments in the world of alternatives.
Watch on YouTube https://youtu.be/2pfi2J_1iZc
Download The Best Insights in Alternatives by Prequin https://go.preqin.com/invest-like-a-billionaire-preqin
Connect with Shifra Ansonoff on LinkedIn https://www.linkedin.com/in/shifra-ansonoff-274ab46/
Connect with Bob Fraser on LinkedIn https://www.linkedin.com/in/bob-fraser-22469312/
Connect with Ben Fraser on LinkedIn https://www.linkedin.com/in/benwfraser/
Invest Like a Billionaire podcast is sponsored by Aspen Funds which focuses on macro-driven alternative investments for accredited investors.
Get started and download your free economic report today at https://aspenfunds.us/report
Join the Investor Club to get early access to exclusive deals. https://www.aspenfunds.us/investorclub
Subscribe on your favorite podcast app, so you never miss an episode. https://www.thebillionairepodcast.com/subscribe
Watch the episode here
Listen to the podcast here
Ben Fraser: Hello, Future Billionaires! Welcome back to another episode of the Invest Like a Billionaire podcast. We’ve got a really fun treat today. This is a returning guest. Her name is Schiffer Ansonoff. She’s an executive vice president at Preqin, and they are the leading provider of data on alternative assets. So if you are curious about learning about alternative investments, you gotta listen to this. She breaks down what’s happened over the past few years in the kind of leading alternative asset classes like real estate, private equity, venture capital, private debt, and looking at the trends of where are capital allocators and managers, shifting focus to, and we get into opportunities in private debt.
You know why real estate is a little bit of a standstill right now? And at the very end we talk about where the opportunities are in real estate. So you gotta listen to the whole thing. And if you’re listening to this, we definitely wanna recommend you push pause and go watch this on YouTube because she goes through her slides and these slides are really illuminating and help tell the story of what they’re seeing at a high level.
And the last thing I’ll say, this was so cool about this is as investors, we get so focused in our little markets and even just in the us but Preqin is tracking these, this data globally, so they have a really global perspective of money flows, and it’s just such a helpful sense to understand as an investor.
So with that tune in, we know you’re gonna love it and enjoy the show.
This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you’ll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra wealthy, discuss economics and interview successful investors.
looking for passive investments done for you. With Aspen funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you and alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned.
We focus on macro driven alternative investments. So your portfolio is best positioned for this economic environment. Get started and download your free economic report today
Ben Fraser: We’ve got one of our favorite guests and a returning guest today on the podcast, Shifra Ansonoff. And if you’re new to the podcast, you may not recognize that name and uh, you’re gonna be very delighted with today’s conversation. So Shifra, she is the global head of customer experience at Preqin and Preqin is really like the leading global data provider on alternative investing across the world.
And they just recently won an award. And Shifra, we can tell you a little about what that was. But she has a pretty amazing background working in very large companies and alternatives in the space and. There’s amazing perspectives on this. And so we’re really excited to bring her on and really dive into what’s going on.
There’s been a lot that has changed in the past year in alternatives and wanna just get the kind of really big, 30,000 foot view perspective. So Schiffer, thanks so much for coming on. We’re really excited about this.
Shifra Ansonoff: Thank you. So excited to be here.
Ben Fraser: Yeah. So what was the award that Preqin won recently?
Shifra Ansonoff: Preqin was ranked number one in the Probitas survey for top benchmarking tools in the alternative space.
Ben Fraser: We love the data you guys provide and so it was, it’s always a treat to get to have you on and share because you guys really know this stuff. And so we actually are gonna be walking through some slides sometimes. On these podcasts, we recommend that you view this on YouTube if you have the ability to because we are gonna walk through some slides and then Shifra has graciously allowed us to make these available for our audience to download.
So we’re gonna put a link to download those in the show notes. But you’re gonna wanna buckle up, pull out a pen and pad, and get ready for some great data.
Bob Fraser: Invest Like a Billionaire is really about, following what billionaires are doing.
And they’re, something around 50% of the net worth of most billionaires is in alternatives. And so what Shifra’s firm does is track the ebbs and flows of what is working, what are investors, whereas investors appetites are increasing and waning in this alternative space. What are the big guys doing?
And so this is gonna be super interesting.
Shifra Ansonoff: So let me start out. I’m gonna share the screen and talk about it. The future of alternatives. So at pre we have a data scientist team and we have a model where we run projections of where we expect future fundraising themes, future trends, where AUM will be in the next six, seven years.
And what we do is we look at recent themes in the data macroeconomic variables and also recent themes in our fundraising and from a linear perspective. What we are projecting is that in spite of everything we’re seeing in the headwinds in the market, alternative assets are expected to grow at 9.3% CAGR from approximately 13 trillion today in assets under management, up to 23 trillion in 2027.
Wow. And. Huge number and
Ben Fraser: know, And you just confirm. So CAGR for those that may not know, is compounded annual growth rate, right? Yep.
Bob Fraser: So the compounded amount of capital that’s in, that’s increasing. And a u m is assets under management. So we wanna include everybody who is maybe just joining in and wanting to get their head around this.
So it’s huge growth and looking at the chart. One of the things that jumps out at me besides the growth is the growth of private equity is the fastest growing, right?
Shifra Ansonoff: Private equity is out there for sure. And NBC venture capital, yeah. Private equity is definitely one of the largest buckets, actually the largest behind that in this chart is hedge funds.
But in terms of private equity it is expected to grow at around a 10% cagr, which is great. It’s above the average for all alts. Actually venture capital is the fastest growing, it’s the pink portion of I see that. You can see that visually. It’s pretty amazing. That’s gonna be around a 19% CAGR and interesting as, as fast as it is, it’s slower than it was in the last few years in the 2015 to 2021 period, we knew we had exceptional growth, and 2021 was a remarkable year in and of itself. But we do see a lot of potential in venture capital in spite of everything going on. Now, we know that recently with SVB, there’s gonna be a struggle to secure funding, but there are, I’m hearing every day of new ideas, especially at an early stage, which seems to be of interest.
So you have a longer runway. For growth, the early stage in particular seems to be getting a lot of interest. That’s the fastest part is
Ben Fraser: Is this a global perspective? Yes. Like a global aggregation. So I think that’s a really important thing to note too, right? Because so much of the data that we look at generally is just U.S. only, right?
And so what I love about what you guys are doing, it’s not just the U.S. and the U.S. obviously leads in a lot of these categories, but it’s not always the biggest. And there’s a lot of other big drivers in these categories across the globe. Absolutely.
Bob Fraser: Now, there’s two categories here that I’m not a hundred percent sure what they are.
So infrastructure, natural resources. So natural resources, I assume, are like fossil fuels, those kinds of things. And mining energy based. Yep. Gotcha. Okay. And what is
Shifra Ansonoff: infrastructure? Infrastructure? It could be data centers, telecom anything to do with the carbon. Neutral transition, if you will.
And telecom’s been a big component. Infrastructure is the second fastest growing. You have a really good eye, Bob, the second fastest growing asset class that we see huge interest in there. And what’s very interesting there is where and Ben, you’d mentioned the different markets. Typically the U.S. and alternatives are the center of dominance, right?
Where the center of gravity drives the market with infrastructure, we see a lot more interest going towards Europe focused funds. That has really shifted. In Q4 we went around, so 80% of the funds that closed were Europe focused funds particularly, and we are going to see the AUM for Europe surpass that for North America for infrastructure starting in 2025. I actually have a chart on that here. So it’s really interesting to see how the markets shift. And then another interesting anecdote. So on the real estate side, which we’ll we can get into, we saw in the 2015 to 2021 time period, Europe was in the lead actually.
From a real estate perspective when in terms of growth, but Europe’s now behind the pack APAC is actually growing. There’s a lot of interest proportionally in interest in real estate. Particularly we’ve seen interest in Japanese real estate with the dollar Japanese yen rate. So these shifts continue to happen and you’ve gotta pay attention to it.
There’s the North American market, but there’s so much opportunity outside.
Ben Fraser: Very, very interesting. What do you think is driving the infrastructure growth in Europe? That’s an interesting topic.
Shifra Ansonoff: Yeah. There’s a strong emphasis on ESG and I feel Europe is ahead of the curve versus North America on ESG and we know politically there’s a lot of debate in the US on ESG.
So I think that’s a huge driver. Allocators are looking to tick the boxes and say, oh, wow. See I’m allocating a sustainable, so I think that’s a big draw. And we will catch up over time, but it’s gonna take time to get there.
Bob Fraser: The other that jumps out at me is, and we need to probably get to so many other slides, so you’re gonna run outta time but it is the natural resources because.
So if you look at the e i a predictions on, the need for natural resources, we need 40 times global lithium production, 40 x, right? We need the same amount, 20 x on graphite and, so we need fossil fuels. There’s clearly, it’s been underinvested for the last seven years relative to what’s needed, according to my research.
It’s interesting that you’re not showing that.
Shifra Ansonoff: You know the energy, it’s interesting because we’ve done a lot of studies on that and there certainly there are flows to conventional and renewable energy, but they’re not what we, when we look from a risk return perspective, we tend to see that natural resources, doesn’t it?
You’re taking on a lot of risk, and you’re not getting a lot of bank for your buck there. Although, last year was an exceptional year, so I think people. They shy away from that. That’s from what we’ve seen anecdotally in the data.
Bob Fraser: That makes sense. So a lot of the bigger public companies are gonna be taking the lead and Yeah.
Yeah. Driving around diesel field trucks to pull junk out of the ground, dirty, ugly business. And uh, And, not necessarily super high return. My son is actually a gold miner and a gold exploration geologist for one of the largest gold mining companies in the world. And it’s an ugly business, good. Let’s keep rolling.
Shifra Ansonoff: Yeah, absolutely. Just to unpack a few more of the themes and then we can go through. Okay. Private debt is the next fastest growing asset class and we see abundant opportunity and as banks have shied away from lending after 2008, private debt has really made its mark and been building out.
Even more so now, I think there are gonna be more opportunities for lending, as we all know. And then, in terms of the slower growing asset classes, real estate is moving at around an 8% cagr and then hedge funds are the slowest, is what we can see here. We’ve seen hedge funds suffer a number of outflows starting last year, and so we’re, they move up and down with the markets like Q4 was actually a bit of a bounce, right? The S&P was up 7% and you tend to see hedge funds move, move up a bit more when you have times like that. Something that is new in our forecast that I wanted to point out is we started to predict projected performance and what we can see is what’s interesting when you unpack the different asset classes.
The pink bars are the exceptional period, 2018 to 2021. So you can see private equity up at, around 19%. Growth, right? And from a returns perspective, venture capital 23%, if you look at the, even the lower boundary for venture capital, you were in positive territory, right? When you look at various vintages, but then in, our predictions we definitely see a leveling off.
Of the returns for both private equity and venture capital, we see valuations coming down and resetting. Exits have come down, which we’ll see in the numbers as well. And all in all it’s, it seems to be in moderation. It’s still decent returns, double digit returns, which you’re not gonna get from other asset classes, but it’s something to be aware of.
And what’s interesting here in our data as well, private debt. As I mentioned, it is growing and there’s a lot of interest. We saw a drop off in our data on expected returns, but it seems to be more of, because there’s a preponderance towards allocating to the lower risk segments of the market, like the direct lending.
When you’re looking at senior debt, you’re expecting to see lower returns there so that it seems to be an indication.
Ben Fraser: Yeah, it’s very interesting. I’ve been seeing some charts. I don’t know if you have data on this later, but on venture capital where a lot of, follow on later stage rounds of raising are, having lower valuations than they were at the previous round.
And seeing that as a consistent theme. So it makes sense that you would see a pretty big tail off on venture capital returns for the next couple years, but you would also kind of, maybe over the next two years, returns are gonna be lower, but evaluations retract significantly.
The vintages that start maybe in a year or two will actually potentially be very good. So it’s it, yeah. Can’t even dial down a little bit further in that time period.
Shifra Ansonoff: Absolutely. And when we look at the recent vintages, if you look at the 2019 vintage for when you look at private equity you’re looking at a lower level of returns than you would from 2018.
But what a lot of folks have done studies, I believe BlackRock came out with a study that this is a good vintage here. Like in, in times of uncertainty, now there’s a buying opportunity. As long as you’re judicious you take the boxes and there are a lot of good ideas out there in the market.
You just have to be more cautious about and really check the fine print of everything.
Bob Fraser: Shifra, do you, does Preqin track public versus alts performance?
Shifra Ansonoff: We have the public indexes. So we could see from a risk adjusted perspective, for instance, for hedge funds, that’s a very popular way of looking at the returns, right?
We have it in our platform for some of the big indexes. Much more at the index level. And we did have further in, in the slide deck, we do have a slide that shows the drop off in re return levels. And you can see the alts, the private markets are catching up, but you don’t see the drops as markedly as you see in public markets.
And it’s a function of a lot of things. People are waiting and riding this thing out as long as they can. We’re seeing a lot of interest in continuation fund vehicles. This is like GP led secondaries effectively. So people are trying to avoid it, they don’t wanna sell out your interest in a way where you’re gonna be losing a lot of money right now.
So if we can hold out as long as possible, they will and avoid resetting. And we’ve also seen from the public markets, when we look at our exits IPO, there’s almost no IPOs. And they’ve come down tremendously. So if we actually shift I’m sorry that I’m going through a few slides here. But if we go to private equity, I know you could say, I have a lot of slides.
You can see the tremendous drop off in exits here and quarter over a quarter. And what happens there? It’s like a loop. So if you’re having fewer exits, then there’s less money to recycle into new opportunities. And then if you have continuation fund vehicles, the same thing. The other concept that we’re seeing.
Is that a lot of allocators are re-upping with existing, experienced managers that they already have? Because it’s easier to justify to your board. Okay, I’m gonna give a new allocation to BlackRock, right? Or to Blackstone. Or, as opposed to going with a new manager and taking a risk right now.
So what’s happening is that what’s a little bit scary is that we’re seeing less money being recycled around because of the times that we’re in right now. But once this clears out and we’re in a much better favorable environment where things can exist we’ll go up again. It’s just right now, things have slowed down a lot.
So this is really, you can see on the left the pie chart of breaking up private capital markets in, in terms of asset buckets.
So you can see private equity dominates from a bucket perspective of approximately 12 trillion if we were just to count the private capital assets. But when we look. At, on the chart on the right, you can see the history of fund flows, and you can see that 2021 certainly we had this spike in, and so that was across the board, but then you saw that the levels dropped off and then certain buckets, like private equity had really noticeable dips in fundraising trends and the number of funds close and the aggregate capital raised.
No, it’s, yeah, surprising. Not surprising at all. And in terms of if you want, we could go into specific segments of the market. Yeah, that’d be great. Yeah. On the venture capital side, I wanted to show this as well. You can see that deceleration as well. This is on the fundraising side. So we had the lowest level of aggregate capital that’s been raised since 2015, actually in Q4 of this year, which isn’t charted.
I didn’t, wasn’t able to fit that in the slide. Really low levels. And in terms of the number of funds closing as well and all. 2022, we saw 201 billion raised for vc and what that’s translating to. Also, we see fund managers on the road longer to raise money. There’s around 15, 5500 funds in the market.
A 45% increase on what the number was a year ago. Because they’re not reaching their targets and it’s taking them longer to bring in the money. So that’s something that ‘s very impactful. There’s a lot more competition and crowding of the space in general. And
Ben Fraser: it just seems that there’s just softness of demand from a deployment standpoint.
I That’s probably what’s driving most of this, right?
Shifra Ansonoff: Absolutely. They’re also holding out as well. And if we look, here’s some interesting information on the infrastructure side. If you look at last year, the first half of the year was tremendous for infrastructure. We saw around 127 billion raised across two quarters.
An average of around 60 billion per quarter. Normally the average, we average around 30 billion a quarter when we see the aggregate capital raise. So infrastructure has been really hot, but then a big deceleration toward the end of the year, and it’s. It’s a question that I get asked, why?
And it seems that the interest rates that are going up, even infrastructure, which has a bounty of opportunity, seems to be impacted by the state of the world with interest rates.
Bob Fraser: Anything that requires debt is gonna be challenged because all of a sudden you’ve gotta recalculate everything.
And, some deals don’t make sense anymore when the debt’s expensive. If it’s a leveraged opportunity, and most are.
Shifra Ansonoff: Yeah, most definitely. And as I mentioned, if we actually go here, this is the chart that shows that in Europe, fundraising will overtake North America. So you can see the pink bar is Europe 2025.
It’s really gonna dominate in space in particular. 670 billion in AUM for Europe focused versus 600.
Ben Fraser: And you’re saying you think a big driver of that was the kind of ESG growth.
Shifra Ansonoff: Yeah, that, that’s my take on that. Just that, it’s really fascinating right now. And if you want, we could shift to private.
Private debt is actually one of the more if you, from an optimism perspective, if you look at, we run an investor and fund manager survey a few times a year, and we can see private debt is the asset class that investors expect to. Really increase their allocations to more than other asset classes. You can see it on the left, the navy blue portion of the bar.
It’s really abundant in opportunities, and you can see that from a fundraising perspective. We did see a nice pop in, in q1, q2, q3 in terms of the aggregate capital that’s raised, although a dip in q4, it seems like. More or less came down in Q4 mostly. We see the number of funds closing, dropping off.
So what that means is that there’s more capital being raised against a smaller set of funds, average fund sizes. What we’ve been seeing has actually been increasing in space. So one thing that, that shows this more vividly and
Ben Fraser: Schiffer, just to kinda pause real quick because so private debt for, Big level.
This is debt to businesses And debt to real estate is that it’s both
Shifra Ansonoff: or what? It’s mid-level size businesses. It could be the real estate side. And the idea is it’s not a bank that’s lending the money. So it’s and this is what’s interesting about private debt, is that since 2008 when banks were cracked, they were cracking down from a regulatory perspective on the larger banks for sure.
You, you saw a drop off in lending. So that created an opportunity for this space, and we’ve really seen that. We have around 1.3 trillion in a u m for private debt. So it’s really a great replacement for traditional fixed income. Another thing that’s interesting with private debt is a lot of the structures are floating rate.
So because they’re floating rate, they’re less sensitive to moves in interest rates. So they are favorable, right? They have strong covenants, particularly on the senior debt side. Very, a lot more flexibility in the way you can structure them.
Ben Fraser: So
Bob Fraser: Even at the same time, From the return perspective, what you showed, you’re not sacrificing much returns to get into private debt, relative to equity, but a whole lot safer, right?
Because, uh you’re one notch lower on the equity, on the stack, on the capital stack. So yeah, we love debt. We love private debt. It’s our space.
Shifra Ansonoff: Oh, yeah. And direct lending seems to dominate when you look at the different strategies. We see the most interest there. But we also see interest in distrust.
Special situations have also shown some interest, but by far, direct lending seems to be where most of the interest is right now. Yeah, your point earlier
Bob Fraser: Define direct lending.
Shifra Ansonoff: Direct lending. That would be where you would invest directly in companies that are mid-sized. And it would not require it, it’s not a relationship with a bank, so you.
You see it as a great idea and you want some exposure to it, you can invest that in, in a debt kind of way. Yeah. Gotcha. You can do sponsored or non-sponsored, but there are various slices of the structure, but senior debt is the senior tranche, if you will, is most common on, on the direct lending side.
Gotcha. Yeah. So in terms of what I wanted to show here is you, if you look at the chart on the left, you can see the big divergence between the average debt fund size for first time managers and experienced managers. And it’s been growing and you see it in our data. If you look at q3, the average fund size for an experienced manager, that pink bar is around 1.6 billion.
And it’s at an all time high. Whereas the inexperienced new managers are around 400 million range, you see that big spread. And the other thing that to note, if you look at the chart on the right, when we look at the proportion of capital we see a heavy concentration in the top 10. Managers. So if you look at the navy blue portion of the line or the bar all the way to the right, it’s around roughly 50%.
So 50% of the capital raise is going to the big guys effectively.
Ben Fraser: Yeah, so interesting. It makes sense why there’s a lot of optimism around this category because at the same time as we, you’re showing venture capital is pulling back a little bit and right now banks are becoming a little bit more tight, right?
They’re not lending as freely as they were a year ago. It’s really created a gap in the market for businesses to find that funding. And then from an investment standpoint, going a little more risk on and going up the capital stack and getting a more senior position. Is favorable. So it definitely makes sense why there’s a movement towards.
Shifra Ansonoff: Yeah, we still have some pre, pretty big fund closes, like the largest fund that closed that we saw later in the year, Clear Lake Special Situations fund that closed for 15 billion. And when we looked at the top closes, there was a good mix also of mezzanine and distressed strategies. So the number of funds closed again is lower, around 30% lower.
So just to give the numbers, 196 funds closed in 2022 versus 283 in the prior year. Definitely see fewer funds, but bigger, fewer funds. Yeah. Interesting. Now in terms of private equity unpacking that we talked about the exit side, that’s dropping and just pointing out here IPOs, you can see that really sliver the.
The light, or actually the bright blue, if you will, is almost nothing. Very little there.
Ben Fraser: So that these are exits on existing funds, right? Yes. Existing deals or portfolio company
Shifra Ansonoff: deals, either IPOs or trade sales where you’re selling to another company, which tends to be a bigger proportion. As well.
Now, you would expect that with valuations where they are, that buyouts would be attractive at some point, right?
Bob Fraser: Yeah, but it’s a double whammy. You’ve got the I p O market that’s dry right now. And the ipO market, of course, comes and goes. But the debt also, because a lot of this is gonna be purchased by debt, so the cost all of a sudden, the value of you’re willing to pay for a deal doesn’t, it’s not the same if you’ve got a leverage for it and at high interest rates.
So debt’s going to be depressing here as well on the exits.
Shifra Ansonoff: Yes, most definitely. And if you look really when we look at geographic interest, where is the region of focus for the funds? So looking at the chart on the left, if we look at developed markets, we are again, a region of focus primarily but still with strong interest in Europe, UK.
But when you look at the developing markets and the emerging markets, if you will, there’s been a strong shift away from China. Interesting. Look at
Bob Fraser: that.
Shifra Ansonoff: Yep. So Southeast Asia and India definitely are picking up. When I spent time in Singapore even recently and also last year, there are new funds every day, new opportunities there.
It’s very interesting the markets and India as well. There’s a lot of businesses moving into Bangalore. A lot of emphasis on FinTech. We acquired a space actually in Bangalore at que. So it is really growing. Something to keep an eye on. So
Bob Fraser: Just for those who may not be seeing this and just listening, a year ago, in November of 21 45% of respondents said they were interested in investing in China as the one of the best opportunities.
Today it looks like about 17 or 18%. Interested. So huge drop off and interest in investing in China, which makes a lot of sense. One of the, one of the, one of the trends we’re tracking, Shipra is the movement off of China to the US kind of the reshoring trend. There’s a massive reshoring trend: about 1 trillion was spent last year, according to one economist. Companies reshoring to America.
And, costs continue to rise overseas, right? For manufacturing and these kinds of things. And. And so it’s, it’s starting to look, it’s starting to look good to, to, reshore. So very interesting.
Shifra Ansonoff: De-globalization. Exactly. Exactly. Yeah, absolutely. So it, it is also interesting to see how they shift and and that’s something that, that we look at very closely in terms of, this was a chart I referenced where you can see the dislocation between the public and the private equity markets here, looking at the returns and the drop off and, okay, walk us through this.
This is super interesting. Yeah. So for various sectors of the market, what we’ve done is we’ve charted, we’ve looked at our. And, looking at portfolio companies, if you will, and the returns there and we cohorted them by sector. And then we saw, okay, what were the returns for the, recent time period from the Q1 to q3.
What we can see, the pink bars, is what we see from our asset level benchmark deal performance data. Really small drops like you would think of infotech, right? And consumer discretionary with all the drop-offs in the public markets would have much more market drops, public equity return, much, much higher.
You tend to see these drops in public equities first, right? Because there’s also a latency in the data, how it’s even reported on the private side. But also you can hold off and stay in your position longer. You don’t have to write down your debt. You’re the market down as often as you would on the public equity side.
So it’s just, it is fascinating. It’s something you look at and you might wanna question and discern.
Bob Fraser: So just to explain what we’re seeing here is, this is returns for the first three quarters of 22. just total return. And uh, so pretty much across the board you saw losses except in energy, which went up in the public markets, everything else went down.
Mm-hmm. And generally it was a lot better on the alternative side. It makes sense. It’s one of the things we talk about quite a bit on our show, it’s the public markets have a herd following mentality, right? A herd following component and a. An emotional component.
There’s a, it’s narrative driven and sentiment driven, and people bid up the value of an asset, and then they bid down the value of an asset. They get, it’s manic and they get depressive and, and it flows back and forth. Whereas when you’re doing alternatives, there’s much less of that in the market.
It’s just you’re gonna have a whole lot less volatility. And
Shifra Ansonoff: we’re seeing that. And you have lockup periods, longer holding periods. Right, As, as well, yeah.
Bob Fraser: You, they’re not liquid, so you can’t act on your emotions, either way.
Shifra Ansonoff: Exactly. So I just thought that, it’s just something that might be interesting to the listeners.
To see that. In terms of shifting to real estate is an area of the market where we see the most pessimism from, at least our investors and fund manager surveys. And we see that alignment where both managers and investors believe that real estate is overvalued as room for further reduction.
You can see that strongly here. From a real estate perspective, there still is a lot of opportunity. You look at the different verticals in the market, but there are challenges, right? On the retail side, on the office side, we saw a number of keys being handed back. For buildings in, in California, San Francisco, I believe.
I think the building, one of the buildings, was in LA Law. Like in the opening credits. So it’s just, it’s really amazing, people aren’t, I think that’s a function. Of the remote work. If you look at the trends, I think in California, San Francisco, it’s 30% occupancy right now of offices. Is that,
Bob Fraser: Is that nuts?
Yeah, so the whole real estate world is topsy-turvy, so very interesting. It’s interesting too that here you have a sentiment of investors and managers and very aligned in agreement that prices are gonna have to come down. And of course they are.
Ben Fraser: So interesting. Yeah we’ve been tracking some data.
This is more on the, multi-family residential CMBS loans and there’s, a lot of concern where a lot of properties, especially in the multi-family space for the past several years were purchased with, bridge debt and floating rate debt and with current interest rates now as some of these loans are starting to mature, They’re not gonna qualify for refinance.
So I think part of the pessimism is obviously rise in, increase in interest rates, decrease values, but it’s also potentially some distress coming down the market. I will make one point too, I’d love to spend a little more time on the real estate kind of section here, because Absolutely.
A lot of our listeners are in, in real estate. And oh, perfect. This is, how’s it got to, if we could break down Yeah. And talk about sectors. There’s such
Bob Fraser: thing as real estate, right? It’s like there’s, so the office is so different from multi-family, right? So I love that you’re
Shifra Ansonoff: breaking it down here.
Yeah. You can see here, the office, the pink. Portion is definitely waning when you look at the aggregate deal values by sector. So big drop-offs. And I know there’s been a lot of talk. Can you repurpose buildings? And older off? It’s not as easy as you think. It’s
Bob Fraser: hard to do. There’s some, I saw a multi-family conversion from an office to multi-family at, outside of the White House, clear the nearest is gonna be the nearest residence to the White House.
I’m like, gosh, class A, but they. GABA money on that thing and you never know if it’s gonna be really odd, it’s gonna feel like a weird place, but Yeah.
Shifra Ansonoff: Yeah. From the office side. Oh, I’m sorry. I was
Ben Fraser: gonna say, so on, on this chart we’re looking at here, this is on new deals that are being purchased by year.
Shifra Ansonoff: Is that what we’re? Yeah, these are vintage years. It’s not been, yeah. Yeah. I’m sorry. This is last year. These are all the deals in 2022. 2021. Okay. So you can see over time the aggregate deal values and like from the analytics, we talked about this a little bit last year. We.
The footprints of people going into cities. I think earnest analytics, they actually ran a study of the footprint of Starbucks and you tend to see people going to, to the metro Starbucks, Tuesday to Thursday, right? But then there’s less foot traffic one day and Friday when people tend to work remotely.
Bob Fraser: So what are the years here? Explain this. I’m not really tracking this chart. Aggregate
Shifra Ansonoff: deal size. Yeah, so this is for 2022. The deals, the real estate deals last year. So it, so 20% the aggregate value, the aggregate deal size if you will has shrunk to 20. For office
Bob Fraser: Of office company.
New deals or existing of all
Shifra Ansonoff: deals that exist. Of all deals. Of all deals. Gotcha. Yeah. And what we can see is that on the residential side, the blue portion and we see it increase, we know that there’s still interest there. I’d love your input on residential because it is a bit challenging right now with rates, but we saw existing home sales had such a balance.
In February when rates went down a little. It’s, but it is interesting. But at the same time, people who have mortgages that whether they’re paying a low rate, do they really wanna get out of that? It’s a tough market right now. But we’re still seeing some positive momentum there.
Bob Fraser: Exactly.
There’s, there’s still I, I saw one study, I believe it was 17 million housing units, short of the shortage. And there’s just demand for households being formed. There’s a lot of demand and so those households have to be formed. You’re either gonna rent an apartment or you’re gonna buy a house and that’s gonna go, whichever is a little bit cheaper.
And so you’re gonna see demand. Then there’s, and then the other stat we track economics is if you look at the amount of the wealth effect from net worth, you look at real incomes are still very high and there’s about eight metrics, consumer metrics, consumers are very flush, at least in the United States with cash.
And there’s a lot of money, so people, they’re gonna wait a while, but there’s underlying demand. There’s a long, structural demand that’s not going away. Even though now we’ve seen the prices just skyrocket and the cost skyrocket. Yeah. Yeah, multi-family and all residential is just going to continue to be a good area and it’s one of the best, historically, one of the best ways to beat inflation.
And in fact, I looked at five decades worth of data and and housing was the one consistent beater of inflation in every of the last five decades.
Shifra Ansonoff: And it needs space. One thing that we saw was interesting in our data, so the niche, which is smaller, it’s like the dark blue portion of the bar.
Oh yeah. We see. That includes student housing, senior housing. And what we see is senior housing is a long-term opportunity and it is actually doing well. So it’s looking at the stats on population growth. The number of the elderly population is gonna just increase, doubling for 85 and older.
Nice. Stats show that we’re gonna see going from six and a half million to 11.8 million in 2035. And hitting 19 million in 2060.
Bob Fraser: Wow. One of the, one of the interesting asset classes that I was looking at last week was residential assisted living. And, there’s a lot, there’s a lot of evidence that the buyers, consumers don’t want big box assisted living, right?
They want more of a smaller opportunity, but there’s no way to really invest it in a large scale that I’m finding. But yeah.
Ben Fraser: Very interesting. Do you have any data or any just anecdotal thoughts on or do you guys do surveys, managers and investors on a go forward basis? Because obviously right now as interest rates are higher, we’re seeing a huge, just slow down in transactions. But to your point, a lot of these deals, if you have a good solid deal that you’re in, you can ride out now, some of the challenges and interest rate side, if you.
Good, strong underlying fundamentals that are driving revenue or NLI growth. But do you see any particular niches or asset classes here going forward that have stronger sentiment versus others? Because one of the trends we’ve been following, we’re very bullish on, going back to the reshoring trend, is industrial and industrial specifically for manufacturing and for warehousing.
Are you? Any sentiment of, hey, as a whole, real estate, it’s a little bit softer right now for obvious reasons, but there’s gonna be opportunities and, where are our managers potentially looking?
Shifra Ansonoff: Yeah, anecdotally we see few we actually see on the telecom side very strong interest data centers.
Six of the 20 largest deals in q. As of 2022 we’re in the telecom sector, and four were US based assets. They’ve actually once that here, they telecoms recorded more deals than a higher aggregate deal value in 2020 e than preceding years, so even before Covid. And it was really turbocharged by this movement to home working or hybrid working.
That’s a huge area. In terms of senior housing. It. A massive part of the market. But if we do see sentiment that it is considered recession proof, when we looked at the great financial prices when you looked at that, that had, that actually tends to have a lower beta. When like it’s a 0.48 beta to the N C R E I F flagship property index.
The other aspects of the market. So if we look at risk level like value added versus opportunistic versus core. So core being like the lower risk side, right? Class A properties, we see that there’s been strong interest in the value added opportunistic segments of the market.
Interestingly enough. Particularly for real estate. So 40% of funds closing in 2022 were on the value added side. And this is where they’re looking to refurbish. There’s still that effort to retake an older, let’s say, office and modernize it, have new ventilation and try to update it. If you see Hudson Yards, I think BlackRock is moving into their new part of the new building.
So you can see it in the city, in New York City for.
Ben Fraser: I’m so curious to see, as we go forward, and we’ll obviously have to bring you back next year to talk about what 2023 looked like. But, in the past several years we saw a huge focus on value add deals, right? And, but what we saw, and we were underwriting and doing a lot of those deals early on, or late 2021, early 2020, But as we went on the cap rates really compressed there.
And so you started seeing these value-ad deals, you’re almost paying the future value of a stabilized asset, right? You’re basically taking all the risk. To stabilize and do the construction and take the lease up risk. But you’re paying for that all upfront. And so we’ve actually shifted to more of the kind of core plus, more class a newer assets in really strong growth markets where you can kinda ride the upside on the lease growth and the population growth without taking all the operational orders.
Apples to apples you’re not paying that much more for what we would argue is a much lower risk asset. And so are you seeing any of that kind of
Shifra Ansonoff: Maybe, so that’s interesting that you brought that up versus going forward. Yeah. It’s almost like you planted that one and you didn’t know I was gonna say it.
Okay, perfect. What’s really cool about that one anomaly that we saw on the dda. We’re seeing that our projections are that core and core plus is expected to outperform the, have more returns than the higher risk strategies over the next six, seven years. So 11%. Versus say, the five, 6% range.
So there’s something there, right? Like interest, interesting. The interesting economics of the higher quality in these times, seems to outpace what that risk that you’re taking on. Yeah.
Bob Fraser: Hey, shiver, your analytics, how much does inflation play in your projections? Because inflation’s a game changer, right?
And. All things real estate, the debt is a big component. The biggest component though is inflation, which is gonna be this massive tailwind on asset prices, right? And over. According to math, right? And 8% inflation rate for 10 years sorry for 20 years, no, 10 years doubles the price of an asset.
That’s it. And as long as those, if those, if inflation maintains, you’re gonna see massive tailwinds on all things real estate. Forget debt,
Shifra Ansonoff: Yeah. We definitely incorporate inflation in our model for how we project. And for that reason, we’ve seen dampened projections where we’ve seen, we’ve done a lot of inflation studies.
Huge impact on venture. Particularly because they’re really in the cash burn when you’re trying to build a business, right? You’re borrowing money. The inflation is really harmful there. But certainly we’ve seen it in pockets impacting infrastructure as well and real estate.
Ben Fraser: sense. Very
Shifra Ansonoff: interesting. Now, I don’t have more slides to show, but we can, if you have other questions. Fantastic. But I did wanna share for your listeners if we have some treats, there’s a QR code. That and a page we made four, invest like a Billionaire. So there’s pieces of our content in various reports if anyone is interested in downloading.
And we actually have an almost daily blog that we publish called The Preqin First Close, so you can get that complimentary. I could share the details after, but basically it’s an email that is like an amalgamation of different themes in the alts. Wow.
Ben Fraser: This is awesome, Shifra. Thank you so much.
Yeah. If those that are listening can click on the slides on the show notes, or if you’re watching this, you can see the QR code. Don’t take you to a page where they’re given some treats, as she said, just for our listener. So I’m going there right after this. Oh, cool. And uh, I wanna download, and if you’re not on their email list, you gotta get on pre Quinn’s email list.
Such valuable data as investors. You’ve gotta understand the trends. You gotta see where things are going, and PreK is leading the pack on this. You guys gotta get involved in what they’re doing. Schiff, this is so fun, man. This is such a treat for us. We love the content you guys put out.
Shifra Ansonoff: Thank you so much, so excited to be here. And go
Bob Fraser: see Shifra at the NCREIF
Shifra Ansonoff: conference, yes. In April,
Bob Fraser: go meet her in person and cheer on. It’s an incredible work they’re doing over there at Preqin and so helpful.
Ben Fraser: Awesome. Thank you so much and definitely have you back on next year for the next forecast.
So this is really fun. Thank you so much, Shifra.