Private Wealth

Weekly Research Briefing: The Tide No Longer Rises

February 01, 2022

Jerome Powell and the Fed had two paths to choose from last Wednesday as they began their journey to fight inflation in the U.S. The first path was a road that was lined with 10 million cloned workers. Waiters, ski-lift operators, truck drivers, airline pilots, and even a few CEOs looking to go to work for a fair wage. Unfortunately, neither the science nor the robotic dreams were available to deploy this option before Wednesday's announcement and press conference. So instead, the Fed chose the second path, which was just what we had expected: Future fed rate hikes and a future shrinking of the balance sheet. So instead of 'Star Wars,' we are going to 'Zombieland.' In this movie, the Fed is going to attempt to turn down the gas burner from boil to simmer enough to reduce the labor economy and its effect on consumer prices. Easy to say, but difficult to pull-off. In raising interest rates and selling balance sheet assets into the domestic financial markets over the next two years, financial conditions will likely become more volatile. And as the tide retreats into the ocean, some highly leveraged zombies will be exposed and die. Corporate Darwinism is about to begin after being unseen for several years. The Fed is about to cull the herd of poorly performing companies that do not need to exist, so that their employees and investors can move onto a more productive enterprise.

While we knew change was coming, hearing the news announcement caused much angst. Especially when the fingers of millions were hovering over the buy and sell decisions of all global investment assets. The markets went into a full frenzied panic last Thursday and Friday morning sending the U.S. small caps into a Bear Market and Tesla into a 7-hundred handle. But as investors found comfort in the week's earnings, combined with the improvements in COVID, and hopes that the Fed could quickly raise their way out of an inflationary spiral, sellers stopped selling and buyers returned to stocks. So, the worst January ever turned into a less bad January by the close on Monday. This will be the last big week of earnings from the mega-caps. Let's hope that Amazon, Google and Meta do like Microsoft and Apple and not like Netflix. It is also a Jobs Friday week with very low expectations due to the January rise in Omicron. And happy new year to all of our friends around the world celebrating the year of the Tiger, especially to those in Cincinnati, Ohio. Have a great week all.

What Federal Reserve Chair Jerome Powell said on Wednesday that got the markets excited and volatile...

• “ this time, we haven't made any decisions about the path of policy - - We know that the economy is in a very different place than it was when we began raising rates in 2015. Specifically, the economy is now much stronger. The labor market is far stronger. Inflation is running well above our 2 percent target, much higher than it was at that time. And these differences are likely to have important implications for the appropriate pace of policy adjustments. Beyond that, we haven't made any decisions.”
• “...the economy's much stronger, and inflation is much higher. So -- and I think that leads you to -- and I said -- I've said this, being willing to move sooner than we did the last time and also perhaps faster. But, beyond that, it's really not appropriate for me to speculate exactly what that would be.”


Mohamed El-Erian explains the Fed's move...

Investors and traders in the past few weeks have radically shifted their view of the 2022 policy stance of the Fed, the world’s most powerful central bank. Initiated by Chair Jerome Powell’s belated pivot at the end of November away from the “transitory” characterization of inflation, market expectations for interest rate increases have moved rapidly to incorporate five hikes this year alone. The possibility of starting the raising cycle with a 50-basis-point move is no longer out of the question.

In addition to repricing fixed-income markets, this is starting to fuel discomfort about the impact on the economic recovery of what was an avoidable bunching of three contractionary policy measures within just a few months: increasing rates, ending asset purchases and initiating the shrinking of the Fed’s balance sheet.

With such a global liquidity reversal firmly in the cards, it should come as no surprise that markets have become so sensitive to macroeconomic data releases, be they a hot labor market and higher-than-expected consumer price increases or lower-than-expected employment costs.


Goldman Sachs explains...

While Powell did not directly address hiking at consecutive meetings, he hinted at the possibility of a faster pace in three ways. First, he emphasized that the economy is in a very different place than when the FOMC hiked last cycle. Second, he acknowledged the uncertainty about the inflation outlook and said that monetary policy needs to be in a position to address different outcomes, including one in which inflation runs higher. Third, he said that the FOMC would move “steadily” away from its current policy stance, avoiding the term “gradual” used last cycle.

Goldman Sachs

The Market Also Viewed Chair Powell's Press Conference as Hawkish

Goldman Sachs

What Are LPs Talking About?

Read our latest article

Here is a look at the last major Fed Funds rate fixes...

Fed rate normalization cycles


The current financial markets think that '5' is the number for 2022...

"The market has fully priced in two hikes by May, which many believe will come in the form of a blunderbuss 50 basis points hike at the next FOMC meeting in March. Within 12 months, five hikes are now priced as a certainty." (@JohnAuthers)

The Month of Rising Rate Expectations


The Fed's Bostic even thinks that a 50-basis point hike could be possible in March...

I would think that the economic and inflation data would have to be screaming higher for the Fed to push this button. And if that was the case, we would want them to do so. But current data points and indications point to COVID getting better, more people going to work and supply chains easing.

The Fed could supersize a rate increase to half a percentage point if inflation remains stubbornly high, a leading US central bank official said.

Raphael Bostic, president of the Fed’s Atlanta branch, stuck to his call for three quarter-point interest rate increases in 2022, with the first coming in March, in an interview with the Financial Times. But he said a more aggressive approach was possible if warranted by the economic data.

That could mean rate rises at each of the seven remaining policy meetings in 2022, or even the possibility of the Fed increasing the federal funds rate by half a percentage point, double its typical amount and a tool it has not used in roughly two decades.

“Every option is on the table for every meeting,” Bostic said on Friday. “If the data say that things have evolved in a way that a 50 basis point move is required or [would] be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that.

“I do think that a view has emerged that we have some meetings that we really just dial it in and that there’s no ability of action at, and that’s just never been my mindset.”

Financial Times

Wall Street's current rate hike guesses...


Inflation and Fed tightening worries have begun to impact the credit markets...

@KathyJones: Credit spreads are starting to widen as Fed rate hikes approach.

High-yield bond spreads are at the highest level in nearly a year

But the widening of spreads is pretty tame compared to the past...

We will keep the closest eye on the credit and lending markets (as will the Fed). But this seems to be a safe time to begin tightening.

...the Fed is much more sensitive to shifts in sentiment in credit markets than equities. There may not be as much of a “Fed put" to rescue equities from a downturn, but policy makers will likely be quicker to delay their plans to tighten monetary policy if credit markets show signs of distress. "The Fed will respond to plumbing issues in the credit markets," said Dean Curnutt, Macro Risk Advisors founder and chief executive officer. "It will come to the rescue.” After all, if companies can't access funding and suddenly can't make good on their obligations, the economy would come to a screeching halt, the nightmare scenario that has prompted the Fed to act in the past...

Credit traders are not blind to the macroeconomic risks, nor are they mistaken in seeing strong corporate balance sheets, seemingly manageable leverage levels and very willing lenders around the world. The problem is, this won't be the first market to game out weakness, and frankly, it's probably one of the best-supported by the Fed, even with its more hawkish tone. While credit traders have long enjoyed a reputation as having a superior take on the future, this time they probably won't act as the early warning signal for stocks and other risk assets that they once did.

Bond Disconnect


This new tightening of financial conditions is not just a U.S. item...

Lower equity prices, higher short term interest rates and wider credit spreads have inched up around the globe.

Global FCI is now tighter than before covid

Goldman Sachs

With the market angst over higher rates came many calls for calm by the top strategists...

@carlquintanilla: Here comes Marko...
JPMORGAN: “The equity market sell-off is overdone in our view, and we reiterate our call to buy the dip .. While jitters around a Fed hiking cycle are understandable, .. the risk is that inflation-related data improve and fewer hikes are ultimately delivered.”

S&P 500 Performance through Different Fed Balance Sheet Regimes


Rather than a post-FOMC press conference with Q&A, Fed Chair Powell should have just put this tweet up on the Federal Reserve website with the title, "This is why we are going to tighten."


The Federal Reserve is going to be watching wage inflation closely...

They cannot let runaway wage inflation push consumer prices higher. While it is good to see this chart of lower wages rising faster than higher wages, it will become a big problem if the price of your Chick-fil-A meal doubles.

Our GS composition-corrected wage tracker increased to +4.3% year-on-year and our GS wage survey leading indicator stands at +3.8%—each series' highest level since the early 2000s. Our GS low-wage wage tracker increased to +7.5% year-on-year, its highest level in at least three decades.

Low-Wage Wage Growth Tracker Jumped

Goldman Sachs

Say goodbye to two-handle mortgage rates...

The central bank had been the biggest buyer of pools of home loans since the start of the pandemic. Now it is reversing course, winding down its purchases and laying the groundwork to shrink the $2.7 trillion stockpile it has built up. These mortgage-backed securities, hot investments for much of the pandemic, are now selling off. The extra yield that investors demand to own mortgage-backed securities instead of Treasurys has risen by roughly a quarter of a percentage point this year


And the effect of higher rates and reduced MBS demand is being immediately reflected in the rates of 30-year mortgages...

US Home Mortgage 30 Year Jumbo National Avg

Jones Trading

An ugly month for the major indexes became just less pretty thanks to a recovery in its final two days...

Major Indexes

The sectors also were saved by the final two days...

With consumer discretionary making a big Tesla led rebound, the financial sector squeaked into the green. Energy stock didn't need anyone's help during January.

Sector Indexes

As Goldman Sachs shows, the valuation of the S&P 500 has moved in lockstep with the 10-year real yield...

From a fundamental perspective, rising interest rates have accounted for the entirety of the S&P 500 decline. The real 10-year US Treasury yield jumped by 60 bp (-1.1% to -0.5%) between the record S&P 500 high on January 3 and Wednesday’s close following the FOMC meeting. During that time, the S&P 500 forward EPS yield rose by a similar amount. This equated to a 2-year forward P/E multiple contraction of 9%, from 19x to 17x, matching the market drawdown. All else equal, the S&P 500 would decline by roughly 10% to 4000 if the real Treasury yield rose by 60 bp from -0.6% today to 0% and by 15% to 3800 if it rose by 100 bp.

Within the market, high-growth companies with valuations driven by expected cash flows in the distant future have been particularly vulnerable to the rising risk-free rate. Our long duration basket (GSTHLDUR) fell by 24% YTD and the GS Non-Profitable Tech basket fell by 29%.

S&P 500 valuation has closely tracked the path of real rates

Goldman Sachs

The weekend stats showed the beatdown that value was giving growth during January. Expect some sort of revision after this extreme move...

@LizAnnSonders: Among @Bloomberg factors, Pure Growth having its worst month ever relative to Pure Value

Bloomberg Pure Value

Bridgewater remains in the thumbs-down equity & bonds camp for now...

The Fed won't blink, said Bridgewater CIO Greg Jensen. It will let stocks slide as much as 20% or more, putting the S&P below 3,500. And who'll buy all the bonds the Fed has soaked up? He said the 10-year yield must hit 3.5% or even 4% before investors will absorb all the debt the Fed's monetized. In that event, bonds fail as a hedge against stocks and a 60/40 portfolio is useless for diversification.


BofA also remains quite concerned on stocks...

Fed Loves Me Not: we remain bearish… 1. Fed can’t cut inflation on Main St without deflation on Wall St; 2. central banks so "behind-the-curve" the speed of their necessary rate hikes threaten a. recession panic, b. fear of big deleveraging/volatility events on Wall St as yield curves invert (see Nat Gas futures); what is very different this cycle is policy & market excesses that precede 1st rate hike…lowest rates in 5000 years, >$30 trillion policy stimulus since COVID, global stock market cap up $61 trillion in 20 months, GDP >10%, CPI>7%, house prices >20%, largest worker shortages in 50 years, QE directly causing tech dominance & wealth inequality.

BofA Global Investment Strategy

Individual investors have also gotten quite bearish. This is actually a decent contrary indicator...

@RenMacLLC: Bears have come out of hibernation.

S&P 500 Index

January was an incredibly good month for long/short equity strategies...

@LizAnnSonders: Energy is sole S&P 500 sector up YTD, +19%; laggard Consumer Discretionary is -15%; at 34%, it’s widest monthly best-worst spread since October 2002 (only time in history that such a wide sectoral performance range has been observed outside of a bear market) @SPDJIndices

S&P 500 Monthly Sector Spreads

And BofA sees continued underperformance potential out of the equity market's largest weighting as the Fed lifts rates...

Short tech/Nasdaq on higher rates/bloated weightings

BofA Global Investment Strategy

Looking at the other side of the table, small caps have become very undervalued...

Small Cap Valuation


One of the smartest commodity players (and philanthropists) sees a new trend occurring...

Tweet from @JohnArnoldFndtn

Is energy still a coiled spring given its long-term underperformance?

Long oil energy real assets on inflation

BofA Global Investment Strategy

Goldman Sachs agrees with BofA and upgraded their weighting last week...

Upgrade Energy to Overweight (from Neutral). The positive outlook for crude oil prices is one reason for the upgrade. Our Commodities research colleagues forecast WTI will rise by 16% to $101/bbl and Brent by 17% to $105/bbl by year-end 2023. In addition, Goldman Sachs Energy equity research analysts estimate S&P 500 companies in the Energy sector will post 2022 earnings growth of 84% followed by 2023 growth of 22% compared with consensus bottom-up estimates of 37% growth this year followed by a 4% decline in 2023. The Energy sector also trades at an attractive relative P/E valuation versus history. We acknowledge Energy equities have outperformed the S&P 500 by 26 pp YTD (+18% vs. -9%), but we expect the trend will continue. The primary risks include economic deceleration, high sector concentration (the 5 largest constituents account for 63% of the sector), and aversion by some ESG-sensitive institutional investors to owning Energy company shares.

energy returns have closely tracked changes in oil prices

Goldman Sachs

Can the biotech underperformance get any worse?

Of course, the answer is yes. But Jeez! At some point, many of these labs and scientists will start hitting on drug approvals. If investors do not start placing bets, then the big drug companies or private equity might just start scooping them all up.

Largest Biotech Underperformance


And not just on a relative performance, but also historical valuations of biotechs are back down to 25-year lows...

Finding a bottom for stocks that are so dependent on out-year cash flows in a rising rate environment can be difficult. But at the same time, the pandemic has proven to be a good proving ground for a range of healthcare initiatives and drug discovery. With an eye towards laggard-to-leaders, secular growth winners, and enduring pandemic beneficiaries, the Biotech sector may offer some interest. And in the chart below, we highlight how the group has traded on a historical price-to-sales basis (not a P/E, but these are not value stocks, either).

historical median EV/Sales multiple

Goldman Sachs

A final big week of Q4 earnings reports for the S&P 500...

Most anticipated earnings releases


Versus past earnings period, this current one has not been accompanied by a series of higher estimates...

@edclissold: Earnings season isn't helping. Since 12/31/2021, Q4 2021 EPS up 1.8%. Not bad, but much less than the previous 3 quarters as companies blew away estimates. Hard to see corporate fundamentals making up for worsening macroeconomic backdrop (Fed + moderating economic growth).

Changes in single quarter S&P 500 EPS during earnings seasons


Although the Apple, Inc. numbers were a market saver...

@TMLTrader: $AAPL shows positive reaction to earnings as it reclaims the 50-day SMA on heavy volume. Watch if it forms the right side of a new base.

Apple Inc

So, bring on the earnings release and call soundbites!

Apple said supply chain constraints should lessen in the Mar quarter versus the Dec quarter. (Apple Inc.)

"The normalization of auto chip supply and demand is expected in the third quarter, when the capacity of semiconductor companies is expected to rise." (EVP Seo Gang Hyun, Hyundai)

Related to the Hyundai news, Toyota is telling its parts supply chain to fire up...

Toyota Motor plans to make 11 million vehicles worldwide in the 2022 fiscal year starting in April, an increase of around 20% from the current fiscal year and a record, Nikkei has learned.

The plan suggests the Japanese automaker anticipates a strong recovery in a global auto market that has been held in check by a shortage of key components amid the COVID-19 pandemic.

Toyota has shared the plan with key parts suppliers so that they can draw up their own production plans.

For the current fiscal year, Toyota's output is estimated at about 9 million vehicles.

The upbeat projection assumes that the pandemic will be brought under control, and that there will be ample supplies of semiconductors. If the plan comes through, Toyota's output will top its previous production record set in fiscal 2016.

Nikkei Asia

Microsoft's cloud business looks fine...

"It was a record quarter, driven by the continued strength of the Microsoft Cloud, which surpassed $22 billion in revenue, up 32% year-over-year. We are living through a generational shift in our economy and society. Digital technology is the most malleable resource at the world's disposal to overcome constraints and reimagine everyday work and life." - Microsoft (MSFT) CEO Satya Nadella


The LVMH results have been incredibly good through the pandemic...

A reminder that Valentine's Day is coming up and a handbag would be a great gift for all that vacation savings that you have not spent.

LVMH reported Q4 organic revenue growth of 27% (the St was modeling ~15%) overall vs. 2020, including 28% in Fashion & Leather (the St was modeling 16%), 20% in Perfumes & Cosmetics (about inline), 21% in Watches & Jewelry (the St was modeling ~8%), and 18% in Wines & Spirits (this is a bit below the St’s 20% forecast). Organic revenue in Q4 rose 22% vs. 2019, including an astounding 51% in the core Fashion & Leather division. LVMH’s total operating margin for 2021 was 26.7%, up 800 points vs. 2020 and up 500bp vs. 2019. Bernard Arnault, Chairman and CEO of LVMH, said: “LVMH enjoyed a remarkable performance in 2021 against the backdrop of a gradual recovery from the health crisis” (Jones/VK)



Just like LVMH, Whirlpool sees a very strong consumer...

"The simple answer is, so far, we do not see any major concerns about price elasticity. The demand continues to remain strong and robust. And frankly, right now, the most recent increase we put out there, we don't see that as the #1 constraint. So again, it comes back to the overall theme, consumer right now is not our prime concern. It is on the supply side. Of course, you could argue that belong were public talk about inflation at one point. The broader context about expected inflation could impact consumer confidence. But so far, we don't see that yet. The actual price elasticity is -- I mean, -- right now, we don't see a big impact coming from any of the previous price increases" - Whirlpool (WHR) CEO Mark Bitzer


Goldman Sachs' quick bite on big tech earnings...

Mega-cap Tech tells us corporate earnings are holding up just fine. We got results from AAPL, MSFT, and TSLA this week and they did not disappoint. MSFT reported strong growth in its Cloud business, Azure, and also strength in its old core Office 365. AAPL just sold a whole lot of iPhones at a very high price and indicated that consumers want more. And TSLA reported a 65% yoy surge in revenue and a 850bp yoy improvement in gross margins -- showing no signs of being negatively impacted by supply chain constraints. Both AAPL and MSFT outperformed on the week but TSLA traded down sharply again -- highlighting the valuation headwinds facing some stocks in a world where rates are rising.

Goldman Sachs

They also note that the virus is dissipating in many countries...

Virus stats tell us the latest wave is already starting to dissipate. Virus spread is falling in the US, Canada, Italy, and Spain writes Dan Milo in "Tracking Virus and Vaccines: January 27." And many Airline stocks outperformed this week as several indicated that bookings have already begun to pick-up in recent weeks since the height of the Omicron wave. A receding virus bodes well for another reopening impulse this spring and further support for growth.

Goldman Sachs

Another covid-ending signal, McDonald's stores all opening and Southwest Airlines planes are flying...

" of this week, we are now down to only about 1% of our restaurants in the U.S. are operating with limited hours. So franchisees have been able to make significant progress in ensuring that they've got the staffing that they need." - McDonald's (MCD) CEO Christopher Kempczinski

“I’m pleased to report though that over the last few weeks, the operation and staffing have stabilized, and we’ve seen performance even better than during the holidays. Yesterday, for example, we were 95% on time, which I’m just usually proud of." - Southwest Airlines (LUV) Incoming CEO Bob Jordan


Jet Blue also...

JetBlue Airways Corp (JBLU): …trends have largely stabilized and are improving across all geographies. As quickly as the Omicron wave swept through the Northeast, we are seeing cases rapidly decline.


A big homebuilder is also looking forward to an end to Covid and a return to the office because permitting is now impossible...

Beazer Homes USA Inc (BZH): There's another area where the labor constraint, I think, is temporary and it's this weird work-from-home environment that we've got. And I call it weird, I mean I understand the public safety issues associated with it, but I'll give you just a kind of an administrative example…that is very relevant and I think any of our peers would certainly acknowledge. One of the counties we do business in and we do a lot of business there, so I'm going to be careful and not name names, but this is highly indicative. It's a county that has a backlog of building permits, just over 700 building permits to issue. They normally have a staff of 37 people to process permits and -- in their department. They're down to 7 people through a combination of layoffs and administrative efficiencies, several of whom have been out on long-term COVID leave. Now, the truth is they can process today 12 permits a day. They used to be able to process 250 a week. Now, they know their problem. I know their problem. Every one of our competitors knows that problem. I don't think that county is going to be staffed at a level of 7 people with a capacity of 7 permits a day forever. I think that's a problem that we will see a way through.


Small businesses look extremely healthy...

Live Oak Bancshares Inc (LOB): …a recent McKinsey study reminds us the loan-to-deposit ratio of small businesses with revenues under $5 million is 20%. That's right. Deposits are 5x what they borrow.


As for earnings disappointments, is Robinhood Markets now admitting that it needs a halo...

Will Fidelity, Schwab or another reach out to buy the company or is the platform not a steppingstone onto their wealth management paths?

Tweet from @footnoted

Such a great time to be an industrial real estate developer...

"...the rents are growing 2 to 3x the rate of inflation. And not only are the market rents growing, in many cases, the rents, of course, in place are well below the market rents. And because we're in this inflationary environment and there are supply chain challenges, it's hard for new supply to respond as quickly as one would expect. In fact, in logistics, we think in some markets between landing cost -- replacement cost has gone up close to double. I'd say aggregately in the asset classes we like, it's probably up more than 30% in the last couple of years. So owning these kinds of short-duration, hard assets with pricing power is very positive - - In my 30-year career, I've never seen real estate fundamentals in the sectors where we are focused as strong as they are today." - Blackstone (BX) President Jonathan Gray

"Fourth quarter demand was exceptional in the logistics sector with 122 million square feet of absorption, about similar to last quarter and the third-highest quarter on record. Demand exceeded supply by about 40 million square feet, which dropped national vacancy rates to an all-time record low of 3.2%, which is over 300 basis points below long-term historical averages. For the full year demand was 433 million square feet compared to completions of 268 million feet" - Duke Realty (DRE) COO Steve Schnur


Some hot off the press data from the Hamilton Lane Cobalt team...

We looked at the impact of investing a dollar in 2017 across the private and public markets. You see the results here.

Growth of $1

In the private markets, we’re long-term investors, so we tend to focus on outcomes over longer time periods. So, what if we were to zoom out over the last two decades? Same result. In the last 20 years, the pooled average (note the emphasis) private equity buyout and private debt funds have outperformed their public market alternatives in EACH and EVERY vintage. And they’ve done so by significant margins – to the tune of over 1,000 basis points for equity; and over 600 basis points for credit. Undeniable. And those margins increase if you manage to invest better than average.

% of Private Equity Funds Outperforming PME

Hamilton Lane

Talk about a great investment. The least valuable team in the NFL is going to the Super Bowl...

@kbadenhausen: This Super Bowl is a mismatch financially. Kroenke is NFL's 2nd richest owner after Tepper. Brown family is one of the least wealthy.
Franchise values:
Rams: $4.7B, ranks 3rd overall
Bengals: $2.4B, ranks 32nd
per @Sportico

Old music still rocks but now brings in most of the coins...

Old songs now represent 70 percent of the U.S. music market, according to the latest numbers from MRC Data, a music-analytics firm. Those who make a living from new music—especially that endangered species known as the working musician—should look at these figures with fear and trembling. But the news gets worse: The new-music market is actually shrinking. All the growth in the market is coming from old songs.

The 200 most popular new tracks now regularly account for less than 5 percent of total streams. That rate was twice as high just three years ago. The mix of songs actually purchased by consumers is even more tilted toward older music. The current list of most-downloaded tracks on iTunes is filled with the names of bands from the previous century, such as Creedence Clearwater Revival and The Police.

US Catalog vs Current Consumption

The Atlantic

Learn more about the Hamilton Lane Strategies

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The author has current equity ownership in: Amazon Inc., Alphabet Inc., Microsoft Corp. and McDonald’s Corp.


Corporate Finance/Buyout: Any PM fund that generally takes control position by buying a company.

Credit: This strategy focuses on providing debt capital.

Private Equity: A broad term used to describe any fund that offers equity capital to private companies.

Real Estate: Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures.


MSCI Europe Index: The MSCI Europe Index tracks large and mid-cap equity performance across 15 developed market countries in Europe.

MSCI World Index: The MSCI World Index tracks large and mid-cap equity performance in developed market countries.

S&P 500 Index: The S&P 500 Index tracks 500 largest companies based on market capitalization of companies listed on NYSE or NASDAQ.


PME (Public Market Equivalent): Calculated by taking the fund cash flows and investing them in a relevant index. The fund cash flows are pooled such that capital calls are simulated as index share purchases and distributions as index share sales. Contributions are scaled by a factor such that the ending portfolio balance is equal to the private equity net asset value (equal ending exposures for both portfolios). This seeks to prevent shorting of the public market equivalent portfolio. Distributions are not scaled by this factor. The IRR is calculated based on these adjusted cash flows.

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, Hamilton Lane is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of Hamilton Lane.

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