February 2024 Private Performance

Last month I said that the returns from November and December were not sustainable in the public markets. While January was a great return from a historical perspective, February went back to the crazy numbers. The S&P was up 5.17% and the NASDAQ-100 was up 5.3%. Absolutely outstanding numbers. Historically when the first 2 months of the year are positive, the rest of the year turns out to very strong. Now while past numbers don't guarantee us anything, it is an interesting thought. Equities coming out to a great start has not however shown up on the fixed income side. The AGG accelerated it's losses in February, going from -.27% in January down to -2.03% in February.

How did the private funds that we use compare to the public markets? Let's take a deeper dive into each type and see if they performed as expected. Which for my clients is about higher returns, lower volatility, and non-correlation to the public markets.

Private Equity

Both the funds we currently use in the private equity sector have made some updates with reporting. So we should have monthly numbers going forward in line with our other private investments. Starting with iDirect, they had a very strong February. Now it didn't quite keep up with the public markets, but that's not the total goal with these types of investments. A much lower volatility and downside protection are big keys to these types of investments. But we still expect to have out performance over market cycles with private equity as well. And iDirect has a unique structure that combines 3 different private equity power houses, that includes Vista Partners, KKR, and Wargburg Pincus. Each of these firms has different expertise and with this structure, iDirect gets to choose the deals from each of these firms that provides greatest chance for out-performance. While also providing liquidity, low minimums, no capital calls that these funds would not have by investing directly with them. BPIF also had a good February, doubling it's performance from January. Again, as we talked about last month, the venture allocation with-in this fund is what excites me most over the next several years.

Private Real Estate

I believe the private real estate sector has hit final it's low point within the cycle. Now, not all funds are created equal. This where the strength of Blackstone's BREIT and Nuveen's Global Cities REIT management teams and their allocations matter. Both these funds were up in February and both are positive year to date. These are the parts of the portfolio that drive that non-correlation that we talk about. While in 2023, there was a bit of a reset with the historic interest rate increases. It's important to remember that these funds were portfolio savers in 2022 when the public markets were falling apart. In both instances that dividend stayed steady and they still kept their tax advantaged status. Then of course, compared to the public REIT markets, there was huge out performance.

Private Credit

Whatever you want to call them, superstars, all-stars, the private credit sector has been on fire. And if there was one sector that absolutely took advantage of the rate increases, it was private credit. There's a reason why every major investment house is now coming out with their own versions of private credit. Even the big banks are now getting back into the business after shunning it for over a decade. Now the question a lot of investors are asking, is this too much of a good thing? I think like all investments, who you choose to allocate to can and will make or break you. How much experience does that new manager have in the space? How will their funds react when rates start to fall? That being said, even the greatest managers(which we think we have), as rates fall, the dividends on these funds will come down as well. But there will still be out-performance and lower volatility than their public peers.

Performance	February	Year to Date	Annualized Dividend Rate
Blackstone REIT¹	0.62%	1.19%	4.6%
Nuveen Global Cities REIT²	0.17%	0.13%	5.59%
Blackstone Private Credit³	.9%	1.9%	10.4%
Carlyle Tactical Credit⁴	.86%	2.10%	10.4%
iDirect Private Markets Fund⁵	2.19%	2.14%	-
BlackRock Private Investment Fund⁶	.88%	1.32%	-

Conclusion

In summary, the impressive early-year gains and the late-year gains in the public markets underscore the importance of diversification. We do not want to miss out on those returns. But private funds added to your public investments, can offer the potential for higher returns, lower volatility, and market non-correlation. Through examining private equity, real estate, and credit sectors, we've seen the value these investments can add to a portfolio. Private equity's unique partnerships, private real estate's resilience and tax advantages, and the robust performance of private credit amidst rate increases highlight the strategic benefits of incorporating these sectors. The insight provided into each area suggests that careful selection and strategic allocation across these diverse investment opportunities can significantly enhance portfolio robustness, guiding investors towards sustained growth amidst market uncertainties.

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