Private Wealth

Weekly Research Briefing: Still Hanging On?

March 21, 2023

It looks like I wasn't the only one without "Bank Run U." in my March Madness bracket this month. We knew that Silicon Valley Bank was sideways on its asset-liability management because it had been disclosing it in financial statements over the last few quarters. But as interest rates moved higher, this eventually caught notice with its customers. SVB went from business as usual on a Wednesday, to losing a quarter of its deposits on a Thursday, to being taken over by the government on a Friday. The rating agencies and regulators saw the bank as safe from a credit standpoint, but they didn't see the potential for $40 billion of its deposits being clicked away overnight when a few observers yelled 'fire' in a crowded Sand Hill Road arena. The Feds were forced to act quickly to cover uninsured deposits two weekends ago or else there could have been many other bankers last week who wouldn't have celebrated St. Patrick's Day on Friday.

While the Feds hold a garage sale for the SVB and Signature Bank assets, the Swiss government wraps a gift of Credit Suisse for UBS that will not be refused. This box of chocolates looks great from the outside with a low up-front price of CHF2b, a 100b liquidity line, and a CHF15b write-off of CoCo debt. With the Credit Suisse stock now trading at 5% - at the price it did in 1995 – maybe there is some hope that UBS can finally make a return out of the bank that hurt so many investors over the last few decades.

To say that banking customer confidence has taken a hit the last two weeks is a gross understatement. Just talk to anyone who works for a non-top four bank. Depositors are worried, lenders are worried, bank employees are worried and even the Fed is worried. You can take all Fed talk of 'higher for longer' and throw it out the window. Two weeks ago, the market was looking forward to four Fed Fund rate hikes of 25 basis points. Now the market is forecasting one 25bp rate hike this week followed by four rate cuts of 25bps through December. That reversal seemed about as likely as Purdue losing in the first round to FDU.

But guess what, interest rates need to go lower. Banks and brokerages need the values of their Treasuries and MBS securities to rise and they need help on their future funding costs. The dramatic decline of 50bps in the 3-month Treasury yield and 100 bp plunge in the 2-year yield will help both bank balance sheets and their funding costs. It will be interesting to see what the FOMC does at its meeting this week. The market is betting on a 70% chance of +25 basis points to the Fed Funds rate. But maybe the Fed ignores all current economic and inflation readings and opts for no hike to help the banking system weather this current storm. The Fed knows that a soft landing looks more difficult now as the job picture should begin to weaken in both the number of jobs created as well as wage growth. Jerome Powell and the Fed will have a difficult decision in the week ahead. But this should be a piece of cake compared to the two weeks of aggressive work they just maneuvered to hold together the U.S. banking system. The toughest work is done. But the forward work has also been made easier by what just occurred. U.S. growth should slow, inflation will recede and the need for much higher interest rates has been erased.

While the overall market is little changed over the last two weeks, some areas have become very volatile. The regional bank stocks have fallen 30% this month. Thanks, SVB. The equity ownership and employment of small and mid-sized banks just became a lot less interesting. A slowing economy, reduced appetite for lending, higher regulatory costs, increased competition for deposits, plus the increased potential for loan losses equals a more challenged outlook for bank earnings growth. Investors will probably look to allocate capital out of the regional and smaller banks and into the 'Big 4' (J.P. Morgan Chase, Bank of America, Citigroup and Wells Fargo) as well as the non-bank direct lenders who will both take deposit and lending market share. Energy stocks have also been tossed aside as the U.S. growth outlook dims. So, a rough ride for the big dividend payers this month. Stabilizing the market with their gains have been the big technology stocks. Microsoft, Meta and even Intel are looking at six-month highs. Thank you for lower interest rates, higher quality earnings stability and crushed valuations.

Have a good week of work or travel for those heading out with the kids on spring break. Our team will be here as always if you need any help through these even more interesting times.

Matt Levine had one of the best pens on the rumble in the Silicon jungle...

Silicon Valley Bank failed last week because, to oversimplify slightly, its interconnected network of tech-startup and venture-capitalist depositors all worked themselves into a panic and rushed to withdraw money all at once, then tweeted indignantly about how they were justified in doing that and how it was all the Fed’s fault. It was individually rational for each depositor to take its money out and avoid exposure to SVB, but the collective result was quite bad for SVB and for the banking system and for the VCs and startups themselves. Silicon Valley Bank’s Silicon Valley customers, it turned out, were individually rational but unable to act cooperatively in a mutually beneficial way; in the prisoners’ dilemma of a bank run, they all chose to defect.


The most important move by the U.S. government was the implementation of the Bank Term Funding Program...

This program should instill plenty of confidence in depositors going forward as it would now take a bank run of over 40% of deposits to threaten a banking institution. Recall that SVB hit a wall when 25% of its deposits were asked for redemption overnight. Few other U.S. banks will be jeopardized by this given their much less concentrated deposit bases.

How much Liquidity is there and will banks use the BTFP? We estimate that banks have ~17% of deposits (not including the Fed discount window) in available liquidity before considering the Treasury’s Bank Term Funding Program. We estimate that this program allows for $427bn of eligible collateral to be posted across our regional coverage and adds ~25% to bank liquidity (as a % of bank deposits), or ~42% total. As for the BTFP, we would expect usage to be concentrated in institutions that have exhausted most other sources of liquidity.

Goldman Sachs

But the new scare at depositors, lenders and borrowers is going to tighten U.S. financial conditions...

Torsten Slok feels that the recent two-week scare will be equivalent to an immediate 150 basis point Fed Funds rate increase.

Quantifying the impact of tighter financial conditions plus tighter lending standards, we estimate that the events this past week correspond to a 1.5% increase in the Fed funds rate. In other words, over the past week, monetary conditions have tightened to a degree where the risks of a sharper slowdown in the economy have increased.


The Bank of America Global research team plays the credit crunch out further...

2023 = credit crunch = recession: banking crises are followed by tighter lending standards (they have been getting tighter in recent quarters) and lower risk appetite…small businesses most negatively affected as most reliant on regional bank lending (tighter credit = lower small business optimism); US small businesses create 2/3 jobs in America so lower availability of credit causes surge in unemployment; note banks with under $250bn of assets make up 80% of commercial real estate lending & with v high US office vacancy rates (18.7% in 4Q22)…commercial real estate widely seen as next shoe to drop.

BofA Global

Goldman Sachs notes the pullback in non-mega bank lending will cut 0.25% off of future U.S. GDP...

Small and medium-sized banks play an important role in the US economy. Banks with less than $250bn in assets account for roughly 50% of US commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending. And we run scenarios for how this lending may be impacted in a world leaning towards tighter lending standards for banks.

We assume that small banks with a low share of FDIC-covered deposits reduce new lending by 40% and other small banks reduce new lending by 15%. This implies a 2.5% drag on the total stock of bank lending, which economics studies suggest would result in a roughly ¼pp drag on 2023 GDP growth. Our statistical approach also expands our financial conditions growth impulse model to include bank lending standards, which we assume will tighten substantially further, and implies a drag on GDP growth of ½pp beyond that already implied by the lagged impact of the tightening in recent quarters. So, tighter standards will likely translate to reduced bank lending and lower GDP growth for the US economy.

Goldman Sachs

Meanwhile, the mega-banks are getting much larger as depositors run to them and borrowers will soon follow...

“The value proposition of the biggest banks has been enhanced,” says Schorr.

These banks’ attributes include product breadth, technology advantages, capital, size, and importance, all of which likely make them too big to fail. Deposits flowed into the largest banks in the past week, and that trend could continue.

“We love our regional banks. But in an environment where safety trumps all, it becomes harder and less profitable to be a smaller institution,” Schorr says.

Further industry consolidation seems inevitable. The U.S. still has more than 4,000 banks, while the United Kingdom and Canada each are dominated by just six institutions.

Regional banks have been advantaged relative to the largest banks due to their lower capital requirements and lighter regulation. That likely will change. “The markets don’t like uncertainty, and there is a lot of that now,” says Barclays analyst Jason Goldberg.


While it is FOMC week, the big observation is what has happened to year end 2023 Fed Fund rate projections...

The market has moved from a 5.00-5.25% December outlook to a 3.75-4.00% outlook since SVB occurred.

CME Group

Two weeks ago, the U.S. posted strong monthly jobs data and then last week showed a continued slowdown in inflation pressures...

The producer price index (PPI) decreased by 0.1% in February, four tenths below consensus expectations. This reflected a decrease in energy prices (-0.2%), a decrease in food prices (-2.2%), and unchanged core producer prices (flat). Margins declined 0.8% (partly reflecting a 3.9% decline in machinery and vehicle wholesaling margins), and the PPI excluding food, energy, and trade services increased by 0.2%. Both core and headline producer price inflation for January were revised lower (headline -0.4pp to +0.3%; ex. food and energy -0.4pp to +0.1%; ex. food, energy, and trade -0.1pp to +0.5%).

Goldman Sachs

The outlook for inflation continues lower...

US PPI came in sharply below consensus expectations in February (4.6% vs. 5.4% expected) and now targets CPI closer to 4% in the next one to two months.

Raoul Pal

And Friday showed that consumers expect inflation to keep heading lower...

@LizAnnSonders: 1yr inflation expectations per UMich (blue) fell in March to 3.8%, while 5-10yr expectations (orange) fell to 2.8%

The U.S. equity markets have performed well even with the recent banking crisis...

Give credit to the continued strong job numbers, falling inflation and collapse in interest rates. Investors might be fleeing bank stocks, but they are not leaving stocks. They are just shifting towards areas of the market which might be better positioned for lower rates and less economic certainty.

Investors have become more worried about the economy as easily seen in the charts of 2-year yields and oil prices...


Investors have a right to be worried about the economy if the Philly Fed is one of their primary indicators...

@LizAnnSonders: March @philadelphiafed Index rose to -23.2 vs. -15.0 est. & -24.3 prior; employment dropped to -10.3 (now in contraction)

The decline in growth and inflation expectations has worked its way into the long bond...

Note that the long bond ETF might have found a new home above its 200-day moving average.

But still plenty of consumer strength in the U.S. economy as seen by Delta Airlines...


And for the Spring Breakers this week, get to the pool early in the event this article is any indication...

The priciest item on your next hotel bill might not be the room but a posh slice of poolside shade and privacy.

Cabanas, those curtained-off retreats with TVs, padded lounge chairs, couches, trendy sunscreen and other perks, are fetching eye-popping prices as the travel boom stokes demand. Vacationers are shelling out for them, hoteliers say, often because they are still splurging on all things travel to make up for getaways put off in recent years.

For an Easter weekend getaway, the Phoenician resort at the base of Arizona’s Camelback Mountain will set you up in a poolside cabana for $550 to $600 a day depending on location. (The kid-free zone costs the most.) At the beachfront Hotel del Coronado just outside San Diego, a premium cabana goes for $400 a day. Loews Miami Beach Hotel is renting its two-story cabanas with air conditioning, showers and an ocean-view deck for $1,200 a day. Food, drink and tips are extra.

Veteran hotelier Mutluhan Kucuk, managing director at Loews Miami Beach, says cabana prices at the resort’s cabanas are up about 15% to 20% from a year ago and still regularly sell out. The guests renting them spend 35% to 40% more on food and drinks than other pool-goers.

“I wish I had more cabanas,” he says.


A glance at the new 52-week lows from Friday shows you what the market is selling...

Lots of banks and REITs.


Growth stocks are benefiting strongly from the current re-allocation out of financials, REITs and energy stocks...


Even more specifically, the FAANG is back in 2023!

Goldman Sachs

A growing worry is the role that small and midsized banks play in financing U.S. commercial real estate...

If depositors shift away from smaller banks, who is going to help lenders refinance or restructure the $1-2 trillion in debt that is coming due over the next few years? Expect many opportunities for private lending to occur.


Here are some of our Hamilton Lane RE team’s market observations:

Maturity Walls:

1. $1 trillion of Commercial Real Estate (CRE) mortgages are coming due by 2024, 33% of which were originated since the beginning of 2020

2. There is an additional $1.5 trillion that will mature by 2027

3. As these loans come due, capital solutions will be needed to right size capital structures as many of these loans won’t qualify for refinancing due to declines in asset values

Cyclical lack of financing in the market:

1. There is increased regulatory scrutiny surrounding reserve requirements and CRE loans, making access to financing very challenging, particularly for office properties

2.Most balance sheet lenders are requiring new equity to extend loans

3.Given the increase in floating rate costs, many transitional assets are facing cash flow shortfalls to cover higher borrowing costs

4.Given price changes, buyers may walk away from forward purchases signed in 2021/2022 (particularly in industrial), which will require rescue capital

Hamilton Lane and Mortgage Bankers Association

One silver lining to the SVB banking crisis: CRE occupancy is about to uptick as all bankers return to the office...

In the grips of the pandemic, as JPMorgan’s Dimon bemoaned remote working and a Hamptons run-in between junior Goldman bankers and their boss became a cautionary tale, SVB chief Greg Becker sometimes dialled into Zoom video calls from Hawaii.

The California lender’s embrace of the work-from-home movement lasted long after Wall Street ordered its bankers back to their desks, just one of many ways SVB did things differently than their industry peers.

“This is a west coast bank that operates at the heart of innovation and is . . . empathetic and dependent on relationships,” a former executive told DD’s Tabby Kinder and Antoine Gara. “It is not cut-throat like Goldman Sachs.”

Its laid-back culture wasn’t the only thing separating the tech-focused bank from larger rivals such as Goldman, as regulators, investors, and journalists including team DD would discover after it collapsed last week in the largest US bank failure since the 2008 financial crisis.

Financial Times

The Wall Street Journal wrote today that some institutional funds are pulling back from their private market investing. Let's take a closer look...

Some funds are dialing back because their private market assets have outperformed their public market assets so they are over allocated. For those pension plans that cannot raise their allocation limits, they are being forced to stop funding new investments or even go to the secondary market to reduce exposures. Some other funds see write-downs of venture capital investments and think that this will run through all private market investments even though VC is only about a 10% slice of past investments. And one small fund thinks they should opt out of using private equity entirely.

Some U.S. public pension and investment funds are pulling back on private equity after a decade of state and local retirement systems aggressively pursuing the expensive, risky and hard-to-trade asset class...

To be sure, private equity continues to be a mainstay of institutional investment portfolios, with the most of those surveyed telling Preqin they intend to keep their level of investment steady long-term.

Investment in the asset class by large U.S. public pensions remains at a record high of around $500 billion out of a total of $4.5 trillion in assets, according to fiscal 2021 financial reports compiled by Boston College Center for Retirement Research. The $444 billion California Public Employees’ Retirement System is building out its private-equity portfolio to 13% from 8%.

Maryland State Retirement and Pension System investment chief Andrew Palmer said the fund’s planned reduction in annual private-equity commitments is aimed at bringing the 21.6% allocation closer to the 16% target. He said he expects the fund to be overweight private equity even if assets are marked down further.


Good luck to the funds mentioned in the article above who believe that they will outperform without exposure to the private markets...

The WSJ article above did not include a long-term performance chart of private versus public markets so let me help given that we just compiled the data for our new 2023 Market Overview.

Indices used: Hamilton Lane All Private Markets with volatility desmoothed; Hamilton Lane All Private Equity ex. Credit and Real Assets with volatility desmoothed; S&P 500 Index; Russell 3000 Index; MSCI World Index; HFRI Composite Index; Hamilton Lane Private Real Estate with volatility desmoothed; Credit Suisse High Yield Index; Barclays Aggregate Bond Index; Hamilton Lane Private Real Estate with volatility desmoothed; Hamilton Lane Private Infrastructure with volatility desmoothed; Hamilton Lane Private Natural Resources with volatility desmoothed; FTSE/NAREIT Equity REIT Index; DJ Brookfield Global Infrastructure Index; MSCI World Energy Sector Index. Geometric mean returns in USD. Assumes risk free rate of 2.4% representing the average yield of the ten-year treasury over the last fifteen years.

(Hamilton Lane Data via Cobalt, Bloomberg. January 2023)

Aside from seeking better performance returns, why would a fiduciary want to ignore nearly 90% of the companies that exist and employ people in their local communities?

With more than 95,000 private companies in existence globally with annual revenues over $100 million, private equity investment opportunities abound. What many people may not realize is how this compares to the universe of public companies: As of February 2022, there were 95,000 private companies with $100 million+ revenues versus 10,000 public companies with the same annual revenues.

The number of private companies dwarfs the number of public companies.

Hamilton Lane

Meanwhile, the Cal Bear is looking to end its liquid hedge fund exposure in order to shift further into private credit...

Given the two weeks return of hedge funds, the investment fund is no doubt wishing that this move would have been completed last month.

The University of California’s investment fund will stop betting on hedge funds and allocate more of its assets to the growing private credit market.

“Within two or three years, whenever we can get liquidity from our hedge funds, we will be primarily all out,” Chief Investment Officer Jagdeep Bachher said in a meeting on Thursday. “Once we’re out, we’ll replace that obviously with private credit — which has been a better place to be.”

Private credit has gained traction as high interest rates make traditional bank loans less attractive. UC Investments will be making the shift to private credit after investing in hedge funds for two decades, Bachher said.

University of California’s investment office manages about $152 billion, including retirement, endowment and cash assets.

As of Dec. 31, the university had $4.38 billion in absolute return funds, which use a hedge fund risk parity index as a benchmark.

“For 20 years, there are three times we needed hedge funds to work for us — 2000, 2008 and 2020,” Bachher said, referring to years when the stock market fared poorly. “They didn’t really help us tremendously in our portfolio.”


Finally, if you are over 50, then maybe you were lucky enough to see them in my backyard (Red Rocks Amphitheater) filming their most famous video in 1983...

Or maybe you saw them open for the Police on their final tour. Or maybe you just discovered them along your musical ride through life. No matter how you found them, this new U2 documentary is a must see.

Bono & The Edge: A Sort of Homecoming, with Dave Letterman
Rating: TV-14
Runtime: 1h 24min
Release Date: March 17, 2023
Genre: Documentary

U2’s Bono and the Edge make a timely return to Dublin with Dave Letterman, reflecting on their journey as musicians and friends. The film features never-before-seen footage and interviews detailing their songwriting process and the inspiration behind their greatest hits. During lockdown in 2020, Bono and Edge spent time revisiting many of their iconic songs, and re-recorded them for today’s audience. When they emerged, Bono invited Dave to visit the pair in Dublin and attend a special show at the old Ambassador Cinema building at the top of O’Connell Street. Directed by Morgan Neville, this is concert movie, a travel adventure, and the story of one of the most remarkable friendships in the history of rock and roll.

Directed By: Morgan Neville
Cast: Bono, The Edge, Dave Letterman


Learn more about the Hamilton Lane Strategies

Learn more


The author has current equity ownership in: J.P. Morgan Chase & Co.


All Private Markets: Hamilton Lane’s definition of “All Private Markets” includes all private commingled funds excluding fund-of-funds, and secondary fund-of-funds.
Private Equity: A broad term used to describe any fund that offers equity capital to private companies.
Private Real Estate: Any close-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures.
Private Infrastructure: An investment strategy that invests in physical systems involved in the distribution of people, goods and resources.
Private Natural Resources: An investment strategy that invests in companies involved in the extraction, refinement, or distribution of natural resources.


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.
Russell 3000 Index: The Russell 3000 Index is composed of 3000 large U.S. companies, as determined by market capitalization.
HFRI Composite Index: The HFRI Composite Index reflects hedge fund industry performance. Credit Suisse High Yield Index: The Credit Suisse High Yield Index tracks the performance of U.S. sub-investment grade bonds.
Barclays Aggregate Bond Index: The Barclays Aggregate Bond Index is a broad bond index covering most U.S. traded bonds and some foreign bonds traded in the U.S.
FTSE/NAREIT Equity REIT Index: The FTSE/NAREIT Equity REIT Index tracks the performance of U.S. equity REITs.
DJ Brookfield Global Infrastructure Index: The DJ Brookfield Global Infrastructure Index is designed to measure the performance of companies globally that are operators of pure-play infrastructure assets.
MSCI World Energy Sector Index: The MSCI World Energy Sector Index measures the performance of securities classified in the GICS Energy sector.

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.

Recent Content


Weekly Research Briefing: Memorial May

Summer begins this weekend as we observe Memorial Day to honor our fallen soldiers. For many, it will be a time to visit family and friends, attend a graduation and start up the grill for the first time in 2023.

Read the Research Article

The Truth Revealed: Private markets beats public markets - even after fees

Private equity on a net basis beats public equities over most of the past 20 years — even during the recent bull market for public stocks.

Read the Research Article

Weekly Research Briefing: Parked

The S&P 500 has been parked in a 2% trading range around 4,100 for six weeks now. The VIX is stuck at 17 except on the days that the shorts make a run at the west coast banking stocks.

Read the Research Article

FPO We use cookies to improve user experience, and analyze web traffic. For those reasons, we may share your site usage with our analytics partners.

Learn More