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2023 Outlook

Our investment views are rooted in an expectation that the cyclical backdrop will remain challenging in 2023. We believe global economic growth will be weak, with risks skewed to missing the current consensus expectation of 2%. And, while we expect inflation rates will trend downwards in general across those developed countries that experienced pandemic-related surges, we suspect risks are skewed to either match or exceed current consensus expectations, which for the euro area and United States are 6% and 4%, respectively.

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We expect most investors should maintain equity allocations in line with policy targets. Consistent with this idea, we believe investors with portfolios that are more diversified across risk exposures will tend to fare better than investors holding more correlated investments.

Contributors

Stuart Brown Investment Director, Capital Markets Research

Eric Costa Global Head of Hedge Funds

Aaron Costello Regional Head for Asia

Celia Dallas Chief Investment Strategist

Marc Cardillo Global Head of Real Assets

Sean Duffin Investment Director, Capital Markets Research

Frank Fama Global Co-Head of Credit Investment Group

Christine Farquhar Global Co-Head of Credit Investment Group

Simon Hallett Head of Climate Strategy

Keirsten Lawton Co-Head of US Private Equity Research

Meisan Lim Managing Director, Hedge Fund Research

Stephen Mancini Senior Investment Director, Hedge Fund Research

Joseph Marenda Head of Digital Assets Investing

Wade O'Brien Managing Director, Capital Markets Research

Thomas O'Mahony Investment Director, Capital Markets Research

Vijay Padmanabhan Managing Director, Credit Investment Group

Vish Ramaswami Managing Director, Private Equity

Jasmine Richards Head of Diverse Manager Research

Kevin Rosenbaum Global Head of Capital Markets Research

TJ Scavone Investment Director, Capital Markets Research

Caryn Slotsky Senior Investment Director, Private Investment Strategy Research

Chavon Sutton Senior Investment Director, Sustainable and Impact Investing

An Overview of Our 2023 Views

Carolina Gómez Associate Investment Director, Diverse Manager Research

Portfolio Wide

We expect meaningful shifts in net zero and other sustainable and impact strategies toward more impactful implementation approaches. In line with this, we expect allocations to diverse managers to rise, as greater numbers of investors embrace stated investment policy objectives.

Sustainability & Impact

We expect interest rates will increase in many developed markets, as implied by market pricing. But we think the Fed will hold rates in restrictive territory for longer than expected. We don’t believe any increases will prompt another European sovereign debt crisis.

Interest Rates

We expect global earnings growth will be below average next year, as prior interest rate hikes increasingly bite. With this backdrop, we expect value equities will outperform, Chinese equity underperformance will correct, and Healthcare may present an overweight opportunity.

Equities

We expect most liquid credits will generate higher returns in 2023 relative to 2022, given the better yields on offer. We also see private credit as offering opportunities, particularly in secondary trading.

Credits

We expect the cyclical backdrop to impact private equity and venture capital returns, ultimately influencing recently invested vintages the most. That said, we think the 2023 vintage could perform well.

Private Investments

We expect macro hedge funds to perform well, given our expectations that market volatilities will remain elevated and our view that inflation risks are skewed to exceeding expectations. We expect long/short managers will benefit from positive short rebates.

Hedge Funds

We expect energy equities will be resilient due to underinvestment in recent years. So, we don’t think investors should underweight this economic sector in the near term despite some long-term headwinds from decarbonization efforts. In real estate, we think offices may finally offer some attractive opportunities for the discerning investor.

Real Assets

We expect the US dollar to remain firm but with limited appreciation relative to 2022, given our view that it is near the end of its incredible multi-year run. We believe gold’s performance will improve and digital assets, in general, will not surpass prior highs, many of which were set in 2021.

Currencies