Alternatives Monthly Recap

📰 Industry News

Lenin once said, “There are decades where nothing happens, and there are weeks where decades happen.” It’s an understatement to say a lot happened in April. Tariffs and trade policy blew up the headlines and the markets. And hopefully in both arenas, cooler heads have started to prevail.  

However, one result of the massive volatility has been a slowdown in the long-awaited return of IPOs. More than a dozen companies, including MNTN, StubHub, and Klarna have pulled their plans to list, at least temporarily. For investors desperately in need of some DPI, this was not great timing.

One firm that decided to brave the waters was CoreWeave, which IPOed at the end of March. Even though the deal was downsized and priced below the initial range at $40, it was still a successful listing. Today, CRWV is trading at $41, down from it's high but still just above the listing price. Perhaps it will give others some confidence to jump in.

Larry Fink also made headlines, vowing to unlock private markets for the masses in BlackRock’s annual letter. BlackRock will face competition though, as its cousin Blackstone announced a massive partnership with fellow trillion-dollar titans Vanguard and Wellington to create sophisticated institutional multi-asset solutions specifically for the wealth channel. Scale is definitely creating some large economic moats within alternatives.

📈 Hedge Funds

In keeping with the advantages of scale, large hedge funds continue to attract more LP capital than smaller ones. Within the billion-dollar-plus group, With Intelligence reports that equity, multi-strat and credit strategies saw the biggest $ inflows over the last twelve months. In percentage terms, systematic / CTA strategies grew the fastest, posting 16% year-over-year growth.

⌛️Semiliquid Alternatives

In the category of fast-growing alternatives, few products are scaling faster than semi-liquid evergreen private markets vehicles like interval funds and tender offer funds. These continue to grow at an incredible rate, 30% to 50% year-over-year in aggregate. Today semiliquid funds, including unlisted BDCs and REITS have over $250 billion in assets under management, according to Bain. Private credit is just over half of this AUM.

Much of this growth has come within 1940-Act vehicles, as the ease of use of interval funds has facilitated rapid adoption amongst wealth managers. I first researched interval funds about 5 years ago, and there was “only” 40 or so of them with $20 billion total in AUM across the industry. Today, Pitchbook says there are about 100 interval funds managing nearly $100 billion in assets under management collectively. Again, that's an AUM CAGR of almost 50%.

💸Private Equity

Bain released their annual Global Private Equity Report for 2025. In my opinion, it’s the most valuable annual read on the sector. Even if you don’t have time to digest it cover to cover, it’s a must to thumb through. I’ve selected what I think are a few of the more informative charts.

Private equity distributions as a % of NAV hit the lowest levels seen since the GFC, just over 10% in 2024. If anything, Q1 2025 appears to have slowed even more.

As distributions have slowed, NAV has piled up, with nearly 30,000 portfolio companies held by PE funds and a record $3.6 trillion in unsold NAV. Hold periods have extended, with the average buyout exit clocking in at just over 6 years.

However, in context of net cash flows, distributions have roughly caught up with contributions. Although we have not had a year since 2018 where distributions have exceeded contributions, periods like this - 1.5 ,1.8 and even north of 2 seen in the mid-teens and early 2000s - have often come after downturns, and with the current amount of unsold NAV, the next few years might be strong for existing vintages. We'll see.

🏗️ Value Creation

The Bain report this year has a great excerpt on the much-hyped value creation capabilities of PE. Looking at software buyout deals specifically, they analyzed the contribution to equity value creation and found the vast majority of it comes from topline growth and multiple expansion. As someone who has personally run value creation bridge analysis on probably 100 different PE GPs, I also observed that margin expansion rarely contributed meaningfully to a GPs track record. Even within the top-quartile deals, Bain found margin improvement drove less than a third the relative contribution of either of the larger drivers of value creation.

I found it interesting that EBITDA CAGR for software deals so meaningfully trailed projections, as unit economics in software should drop right down to bottom-line margin as the business scales into its fixed overhead. But, it just shows how hard it is to continue to grow the topline at scale without adding to that overhead. I'd love to see the same analysis within industrial, as my experience doing the math on those GPs suggests there may be more operational levers to pull and true margin enhancement value creation capabilities there.

Overall, valuations have crept back up to near record levels in the states, but surprisingly, this represents a slight discount to the average deal multiple found across developed Europe.

McKinsey had a deeper look at Europe’s PE sector, (worth a read on its own) and despite the similarity in valuations, the industry is only about half the size that it is in the US by either assets under management compared to GDP or deal value. I think the market there is still several years away from developing depth comparable to the US.

The UBS CIO Private Markets Quarterly Report also contained some great nuggets. One thing that jumped out to me was that VC valuations haven’t just crept back up, they’ve shot back to new highs. I have felt that marks in VC still feel highly aspirational, and despite all the talk about lessons learned, I haven’t seen much evidence of it. It feels like more of the same. I continue to think it’s a good time to overweight PE relative to VC, and within PE tilt towards value versus growth.

The secondary market seems to be confirming some of these views on valuations, with buyout funds trading at 95% of NAV. I hear that higher quality buyout funds trade at or even above par in some instances. On the other hand, venture capital discounts are considerably wider. VC assets are trading at 75 cents on the dollar on average given a greater degree of uncertainty on terminal value.

🏦 Private Credit

The last share from Bain shows how much private credit is taking share from the syndicated bank loan market within PE sponsored transactions. 90% of financing for these deals came from private credit funds in 2024, partly because banks have moved up to syndicate exclusively transactions above $500 million or so. For the $50 million corporate loan, private credit is just about the only deal in town today.

Despite the market growth, private credit continues to demonstrate a solid spread to public comps. That spread has been very stable, consistently in the 150 to 200 bps range for years.

However, it’s worth questioning how real some of the yield is in private credit given the increase in PIK. We dug in deeper last month, but I think this remains an area to watch, particularly with tariff-driven input inflation looming on the horizon.

🏢 Real Estate

We are digging in on an office-to-multifamily conversion for the first time in earnest, and I've been looking at data on MFR and SFR markets. Rent growth remains reasonably strong across most markets over the last 5 years, but tertiary markets have done even better than the major metros.

The National Multifamily Housing Council has a great report on US apartment demand, and they have reams of excellent data in it. The NMHC estimates given all of the units rolling off of their 70-year useful life, and current development, the US will need 3.7 million additional units to meet demographic growth through 2035, or 266,000 more new units per year.

This implies positive net absorption for some time, which provides continued support for rental increases. One element of uncertainty around demand for MFR is risk of replacement through increased home ownership, but even in the downside scenario, the NMHC estimates nearly 2.5 million unit supply gap.

Home ownership rates have ticked up since bottoming nearly ten years ago, but structural trends show continued declines and lower overall home ownership rates at various age cohorts than in past generations.  

Since the dramatic increase in mortgage rates, existing home sales have plunged dramatically. And a recent article in Yahoo! Finance shows another sharp drop in March.

Total US housing stock, although lower than a few years ago, is slowly rising. All told, the US will probably be short supply for both single and multi family residential over the next several years.

The last chart this month comes from Ben Carlson, CFA at Ritholtz Wealth, showing how resilient housing has been in past recessions. Outside of the relative anomaly from the mortgage-fueled credit crisis in 2008, single family residential has performed fairly well during historical periods of economic contraction. Probably another good reason to own instead of rent if you can.

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