J.P. Morgan Asset Management - J.P. Morgan Asset ......'88 '91 '94 '97 '00 '03 '06 '09 '12 '15 '18...

Guide to Alternatives

MARKET INSIGHTS

|3Q 2019 As of August 31, 2019

2

Guide to Alternatives |

Private markets25. Private market dynamics26. Private equity deals and multiples27. Private equity deal trends28. U.S. public vs. private equity29. Global private equity return dispersion30. Private equity exit activity31. Private equity distributions and the secondary market32. Credit returns across recent economic cycles: 2004 - 201933. Credit market participants and issuance34. U.S. direct lending: pricing and characteristics35. Distressed credit: Non-performing loans

Hedge funds36. Hedge fund strategy returns37. Hedge funds and manager selection38. Hedge fund flows39. Hedge fund exposures40. Interest rates and volatility41. Hedge funds and traditional portfolios42. Hedge funds and volatility43. Hedge funds and the U.S. equity market

Alts in aggregate3. Alternatives fundraising4. Public and private market correlations5. Alternatives and manager selection6. Yield alternatives7. Alternatives and ESG

Global real estate 8. Global real estate fundraising9. U.S. real estate dynamics10. U.S. real estate: Residential and retail11. U.S. real estate: Office12. REIT sector returns13. U.S. REITs and real estate14. Global real estate pricing15. Sources of European property returns16. APAC real estate: Japan residential and Australia office

Global infrastructure and transport17. Global infrastructure fundraising and dry powder18. Sources of global infrastructure returns19. U.S. regulated utilities20. U.S. utilities: ROE, inflation and rates21. Global renewable energy22. Global trade23. Global banks’ shipping finance24. Global shipping dynamics

Page reference

Prepared by:David Lebovitz, Global Market Strategist, Market Insights, J.P. Morgan Asset ManagementAnita Sonawane, Associate, Alternatives Solutions Group, J.P. Morgan Asset ManagementTyler Voigt, CFA, Associate, Market Insights, J.P. Morgan Asset Management

2

3


226 244326

419 423521

584466

221

4466

77

79 103

117

132

118

49

7888

109

121140

132

135

138

7426

30

49

4361

68

77

94

4334

60

73

74

92

86

94

101

14

-$100

$100

$300

$500

$700

$900

$1,100

'11 '12 '13 '14 '15 '16 '17 '18 '19

Private equity Private credit Real estate Infrastructure Natural resources

Global private capital fundraisingBillions USD

Alternatives fundraising

Source: Preqin, HFRI, J.P. Morgan Asset Management.Fundraising categories are provided by Preqin, and represent their estimate of annual capital raised in closed-end funds. Data may not sum to total due to rounding.Data is based on availability as of August 31, 2019.

Alts

in a

ggre

gate

$409

$487

$634

$736

$820

$924

$1021

$917

$402

3

4

Guide to Alternatives |Public and private market correlations

Alts

in a

ggre

gate

Fina

ncia

l as

sets

Priv

ate

mar

kets

Glo

bal

real

est

ate

Oth

er

real

as

sets

Public and private market correlations10-years, quarterly returns

Source: MSCI, Bloomberg Barclays, NCREIF, Cliffwater, Burgiss, HFRI, J.P. Morgan Asset Management. RE – real estate. Global equities: MSCI AC World Index. Global Bonds: Bloomberg Barclays Global Aggregate Index. U.S. Core Real Estate: NCREIF Property Index – Open End Diversified Core Equity component. Europe Core Real Estate: IPD Global Property Fund Index – Continental Europe. Asia Pacific (APAC) Core Real Estate: IPD Global Property Fund Index – Asia-Pacific. Global infrastructure (Infra.): MSCI Global Quarterly Infrastructure Asset Index (equal-weighted blend). U.S. Direct Lending: Cliffwater Direct Lending Index. Global Private Equity: Cambridge Associates Global Private Equity Index. U.S. Venture Capital: Cambridge Associates U.S. Venture Capital Index. Hedge fund indices include equity long/short, relative value, and global macro and are all from HFRI. All correlation coefficients are calculated based on quarterly total return data for the period 3/31/09 – 03/31/19. Returns are denominated in USD. Data is based on availability as of August 31, 2019.

Hed

ge

fund

s4

2009 - 2019 Global Bonds

Global Equities

U.S. Core RE

Europe Core RE

APAC Core RE

Global Core Infra

Direct Lending

Venture Capital

Private Equity

Equity Long/Short

Relative Value Macro

Global Bonds 1.0

Global Equities 0.3 1.0

U.S. Core RE -0.3 -0.5 1.0

Europe Core RE (Continental Europe) -0.4 -0.3 0.6 1.0

APAC Core RE -0.3 -0.4 0.8 0.7 1.0

Global Core Infra -0.2 -0.3 0.4 0.1 0.2 1.0

Direct Lending 0.1 0.5 -0.1 -0.3 -0.3 0.1 1.0

Venture Capital -0.2 0.2 0.2 0.4 0.1 0.1 0.2 1.0

Private Equity 0.2 0.8 -0.3 -0.1 -0.2 -0.1 0.6 0.5 1.0

Equity Long/Short 0.2 1.0 -0.4 -0.3 -0.4 -0.3 0.6 0.3 0.9 1.0

Relative Value 0.3 0.9 -0.6 -0.5 -0.6 -0.3 0.7 0.1 0.7 0.9 1.0

Macro 0.2 0.5 -0.2 0.0 -0.2 -0.3 0.2 0.1 0.3 0.5 0.5 1.0

5

Guide to Alternatives |Alternatives and manager selection

Private and public manager dispersionBased on returns from 2009 – 2018

Alts

in a

ggre

gate

Sources: Lipper, NCREIF, Cambridge Associates, HFRI, J.P. Morgan Asset Management. Global equities (large cap) and global bonds dispersion are based on the world large stock and world bond categories, respectively. Manager dispersion is based on: 2009 – 2018 annual returns for global equities, global bonds, U.S. core real estate and hedge funds. U.S. non-core real estate, U.S. private equity and U.S. venture capital are represented by the 10-year horizon internal rate of return (IRR). Data is based on availability as of August 31, 2019.

5

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Globalequities

Globalbonds

U.S. corereal estate

U.S. non-corereal estate

Globalprivate equity

U.S. venturecapital

Hedgefunds

13.4%

10.4%

5.3%

2.9%

10.6%

8.9%

Top quartile

Bottom quartile

Median

28.0%

-11.2%

2.3%3.4%

-2.2%

14.9%

22.0%

19.3%

6

Guide to Alternatives |Yield alternatives

Source: BAML, Barclays, Bloomberg, Clarkson, Cliffwater, Drewry Maritime Consultants, Federal Reserve, FTSE, MSCI, NCREIF, FactSet, J.P. Morgan Asset Management. Yields are as of 6/30/2019, except Direct Lending, Global Infrastructure, EMEA, APAC and U.S. Real Estate (3/31/2019). Global Transport: Levered yields for transport assets calculated as the difference between charter rates (rental income), operating expenses, debt amortization and interest expenses, as a percentage of equity value. Yields for each of the sub-vessel types above are calculated and respective weightings are applied to arrive at the current levered yields for Global Transportation; Preferreds: BAML Hybrid Preferred Securities; U.S. direct lending: Cliffwater Direct Lending Index; U.S. High Yield: Bloomberg US Aggregate Corporate High Yield; Global Infrastructure: MSCI Global Infrastructure Asset Index-Low risk; U.S. Real Estate: NCREIF-ODCE Index; Global REITs: FTSE NAREIT Global REITs; International Equity: MSCI AC World ex-U.S.; U.S. 10-year: 10-year U.S. Treasury yield; U.S. Equity: MSCI USA, Europe core real estate: IPD Global Property Fund Index – Continental Europe. Asia Pacific (APAC) core real estate: IPD Global Property Fund Index – Asia-Pacific. Euro Govt. 7-10-year: Bloomberg Barclays Euro Aggregate Government – Treasury (7-10Y).Data is based on availability as of August 31, 2019.

Alts

in a

ggre

gate Asset class yields

Percent

6

Fixed income

Equities

Alternatives

10.2%

9.4%

5.9%5.4%

4.8% 4.8% 4.6%4.2% 4.1%

3.2%

2.0% 1.9%

0.2%0%

2%

4%

6%

8%

10%

12%

7


Source: US SIF Foundation, Company Reports, J.P. Morgan IDS Data Science Team, J.P. Morgan Asset Management.Environmental, social and governance (ESG). Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated. Data is based on availability as of August 31, 2019.

Alternatives and ESG

ESG mentions on earnings callsRussell 3000, number of mentions, annual

Alts

in a

ggre

gate

7

1357

135 125

283

24

70

8570

272

1

5

312

33

0

100

200

300

400

500

600

700

2010 2012 2014 2016 2018

ESG incorporation by alternative investment fundsBillions USD

Property funds and REITs

Hedge funds

Private equity and venture capital funds

0

20

40

60

80

100

120

140

160

180

200

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19

8


Source: Preqin, J.P. Morgan Asset Management. Fundraising and acquisition activity is that of closed-end real estate funds.Data is based on availability as of August 31, 2019.

Global real estate fundraising

Global real estate fundraisingAggregate capital raised, billions USD

Real

est

ate

Real estate acquisitionsPercent, by asset type based on number of deals

8

$109

$121

$140$132 $135 $138

$74

$0

$20

$40

$60

$80

$100

$120

$140

$160

'13 '14 '15 '16 '17 '18 '19

Office33%

Office33%

Office36%

Residential31%

Residential32%

Residential30%

Retail19%

Retail17%

Retail17%

Industrial17%

Industrial17%

Industrial17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 -Q2 2019

Q2 2018 Q2 2019

9


-10%

-5%

0%

5%

10%

15%

'88 '91 '94 '97 '00 '03 '06 '09 '12 '15 '18

U.S. real estate dynamics

Source: NCREIF, Federal Reserve, BLS, FactSet, J.P. Morgan Asset Management.The cap rate, which is computed as the net operating income over sales price, is the rate of return on a real estate investment property. Data is based on availability as of August 31, 2019.

U.S. vacancy rates by property typePercent

U.S. real estate cap rate spreadsTransactions based, spread to 10y UST, 4-quarter rolling average

U.S. real estate construction costsNonresidential fixed investment in structures, price index, y/y % chg.

Real

est

ate

Jun. 2019: 3.9%

9

0%

5%

10%

15%

20%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Apartment Industrial Office Retail

0%

1%

2%

3%

4%

5%

'98 '01 '04 '07 '10 '13 '16 '19

Average: 2.8%

Jun. 2019: 2.1%

10


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

'13 '14 '15 '16 '17 '18

Source: Bureau of Labor Statistics, Census Bureau, CoStar, FactSet, J.P. Morgan Asset Management. Data is based on availability as of August 31, 2019.

U.S. real estate: Residential and retail

Retail leasing activityShare of square footage leased by retailer type

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2017 - Present

General retail and apparel:

36%General retail and apparel:

28%

Health and fitness: 13% Health and

fitness: 21%

Discounter: 5% Discounter: 8%

Food & Beverage: 10%

Other: 33%Other: 36%

Homeownership rate by age of householderChange since 2015 Q1

Employment growthYear-over-year % change

Real

est

ate

Food & Beverage: 11%

10

Jul. 2019:0.8%

1.8%

1.0%

0.0%

-1.0% -1.0%-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

< 35 35 - 44 45 - 54 55 - 64 65 +

Average 1.5%

11


Source: CoStar, CBRE, J.P. Morgan Asset Management.Data is based on availability as of August 31, 2019.

U.S. real estate: Office

Real

est

ate

Coworking spaceMillions of square feet

Total occupied office square feet per workerSquare feet

4.9 5.56.4 7.1

9.0

10.9

12.9

15.5

18.8

26.7

32.0

0

5

10

15

20

25

30

35

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

11

230

240

250

260

270

280

290

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

June 2019: 240 sq. ft.

12

Guide to Alternatives ||REIT sector returns

Sources: FTSE NAREIT, FactSet, J.P. Morgan Asset Management.All indices are from FTSE NAREIT. Mfgd. Homes represents manufactured homes. YTD (year-to-date) returns are through 6/30/2019. Data is based on availability as of August 31, 2019.

Real

est

ate

12

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Ann. Vol.

Re giona l Ma lls

Apa rtme nts Se lf S tora ge Industria l Mfgd. Home s Mfgd. Home s Se lf S tora ge Industria l Mfgd. Home s Mfgd. Home s Industria l Mfgd. Home s Re giona l Ma lls

6 3 .0 % 4 7 .0 % 3 5 .2 % 3 1.3 % 10 .5 % 4 6 .2 % 4 0 .6 % 3 0 .7 % 2 4 .9 % 11.4 % 3 2 .2 % 2 2 .2 % 2 9 .8 %

Mfgd. Home s Re giona l Ma lls

Re giona l Ma lls

Re giona l Ma lls

Se lf S tora ge Apa rtme nts Mfgd. Home s Mfgd. Home s Industria l He a lth Ca re Mfgd. Home s Se lf S tora ge Industria l

4 0 .9 % 3 4 .6 % 2 2 .0 % 2 8 .2 % 9 .5 % 3 9 .6 % 2 5 .6 % 14 .2 % 2 0 .6 % 7 .6 % 2 6 .5 % 16 .3 % 2 7 .9 %

Offic e Shopping Ce nte rs

Mfgd. Home s Shopping Ce nte rs

Industria l He a lth Ca re Apa rtme nts Offic e All Equity Apa rtme nts All Equity Re giona l Ma lls

Shopping Ce nte rs

3 5 .5 % 3 0 .8 % 2 0 .4 % 2 5 .0 % 7 .4 % 3 3 .3 % 16 .5 % 13 .2 % 8 .7 % 3 .7 % 19 .3 % 15 .0 % 2 4 .8 %

Apa rtme nts Se lf S tora ge Apa rtme nts He a lth Ca re Offic e Re giona l Ma lls

Shopping Ce nte rs

All Equity Offic e Se lf S tora ge Apa rtme nts Apa rtme nts Offic e

3 0 .4 % 2 9 .3 % 15 .1% 2 0 .4 % 5 .6 % 3 2 .6 % 4 .7 % 8 .6 % 5 .2 % 2 .9 % 18 .6 % 14 .8 % 2 4 .3 %

All Equity All Equity He a lth Ca re Se lf S tora ge Shopping Ce nte rs

Se lf S tora ge Re giona l Ma lls

He a lth Ca re Se lf S tora ge Industria l Se lf S tora ge Industria l All Equity

2 8 .0 % 2 7 .9 % 13 .6 % 19 .9 % 5 .0 % 3 1.4 % 4 .2 % 6 .4 % 3 .7 % - 2 .5 % 18 .1% 13 .0 % 2 1.1%

He a lth Ca re Mfgd. Home s All Equity All Equity All Equity Shopping Ce nte rs

All Equity Shopping Ce nte rs

Apa rtme nts All Equity Offic e All Equity Apa rtme nts

2 4 .6 % 2 7 .0 % 8 .3 % 19 .7 % 2 .9 % 3 0 .0 % 2 .8 % 3 .7 % 3 .7 % - 4 .0 % 16 .3 % 12 .5 % 2 0 .9 %

Industria l He a lth Ca re Shopping Ce nte rs

Offic e Re giona l Ma lls

All Equity Industria l Apa rtme nts He a lth Ca re Re giona l Ma lls

He a lth Ca re He a lth Ca re He a lth Ca re

12 .2 % 19 .2 % - 0 .7 % 14 .2 % - 1.0 % 2 8 .0 % 2 .6 % 2 .9 % 0 .9 % - 7 .0 % 16 .2 % 10 .4 % 2 0 .8 %

Se lf S tora ge Industria l Offic e Mfgd. Home s Apa rtme nts Offic e Offic e Re giona l Ma lls

Re giona l Ma lls

Offic e Shopping Ce nte rs

Offic e Se lf S tora ge

8 .4 % 18 .9 % - 0 .8 % 7 .1% - 6 .2 % 2 5 .9 % 0 .3 % - 5 .2 % - 2 .7 % - 14 .5 % 15 .3 % 9 .4 % 2 0 .7 %

Shopping Ce nte rs

Offic e Industria l Apa rtme nts He a lth Ca re Industria l He a lth Ca re Se lf S tora ge Shopping Ce nte rs

Shopping Ce nte rs

Re giona l Ma lls

Shopping Ce nte rs

Mfgd. Home s

- 1.7 % 18 .4 % - 5 .2 % 6 .9 % - 7 .1% 2 1.0 % - 7 .2 % - 8 .1% - 11.4 % - 14 .5 % - 3 .9 % 6 .0 % 15 .1%

2009-2018

13


-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

'80 '82 '83 '85 '86 '88 '89 '91 '92 '94 '95 '97 '98 '00 '01 '03 '04 '06 '07 '09 '10 '12 '13 '15 '16 '18

Direct real estate/S&P 500 correlation

REIT/S&P 500 correlation

U.S. REITs and real estate

Source: NAREIT, NCREIF, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.Real estate investment trusts (REITs). Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not necessarily a reliable indicator for current and future performance. Data is based on availability as of August 31, 2019.

U.S. REITs, real estate, and equities12-quarter rolling correlations, total return

Real

est

ate

Housing bubble/ Euro debt crisis1980 “Double dip

recession”1987 Crash/ S&L Crisis

Recession

13

14


14

Sources: Bloomberg, NCREIF, CBRE, Jones Lang LaSalle, J.P. Morgan Asset Management.Bottom chart: Based on Grade A office yields, which are all broker-estimated with the exception of New York’s office yield (derived from NCREIF). Grade A refers to the highest quality commercial real estate properties.*Europe and APAC aggregate property yield spreads are as of December 31, 2018 due to availability.Data is based on availability as of August 31, 2019.

Global real estate pricing

Europe real estate property yield spreads*Property yields vs. government bonds vs. BBB-rated bonds

APAC real estate property yield spreads*Property yields vs. government bonds vs. BBB-rated bonds

Global cities yieldsGrade A office yields, percent

Real

est

ate

Government bond Corporate BBB All-property yieldGovernment bond Corporate BBB All-property yield

0%

2%

4%

6%

8%

10%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '180%

1%

2%

3%

4%

5%

6%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

14

0%

1%

2%

3%

4%

5%

Bris

bane

Auc

klan

d

Mel

bour

ne

Syd

ney

Osa

ka

Toky

o

Seo

ul

Sha

ngha

i

Taip

ei

Bei

jing

Sin

gapo

re

Hon

g K

ong

Lond

on

New

Yor

k

Current yield spread over 10-year bond (2Q19) 15-year average yield spread

15


Sources: MSCI, J.P. Morgan Asset Management.All returns are based on the respective MSCI IPD Global Property Index, and show one-year returns from income and capital appreciation.Past performance is not indicative of future results. Alternative investments carry more risk than traditional investments and are recommended only for long-term investment. Some alternative investments may be highly leveraged and rely on speculative investments that can magnify the potential for loss or gain. Diversification does not guarantee investment returns or eliminate the risk of loss.Data is based on availability as of August 31, 2019.

U.K. property returnsAnnual returns from income and capital appreciation

Germany property returnsAnnual returns from income and capital appreciation

France property returnsAnnual returns from income and capital appreciation

Sources of European property returns

Real

est

ate

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

IncomeCapital appreciation

-10%

-5%

0%

5%

10%

15%

20%

25%

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18


-10%

-5%

0%

5%

10%

15%

20%

25%

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18


15

16


Sources: Association of Real Estate Securitization, Japan Property Index, Jones Lang LaSalle, J.P. Morgan Asset Management. Data is based on availability as of August 31, 2019.

APAC real estate: Japan residential and Australia office

Real

est

ate

Japan multi-familyOccupancy, percent

Australia prime officeNet effective rent, index level; occupancy, percent

Net effective rent index Occupancy

16

90%

92%

94%

96%

98%

100%

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Tokyo 23 Wards Osaka Nagoya Fukuoka

2008 financial crisis

Tohoku earthquake

85%

90%

95%

100%

60

80

100

120

140

160

180

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Sydney NER Melbourne NERSydney Occupancy Melbourne Occupancy

17


Source: Preqin, J.P. Morgan Asset Management.*Dry powder refers to the amount of cash reserves or liquid assets available for use.Data is based on availability as of August 31, 2019.

Global infrastructure fundraising and dry powder

Global infrastructure fundraisingAggregate capital raised, billions USD

Infr

astr

uctu

re

Global infrastructure dry powder*Billions USD

17

$49

$43

$61

$68

$77

$94

$43

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

'13 '14 '15 '16 '17 '18 '19

$68 $73

$89$78

$111$106 $107

$153

$169

$184

$221

$0

$50

$100

$150

$200

$250

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

18


-5%

0%

5%

10%

15%

20%

25%

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Sources of global infrastructure returns

Source: MSCI, J.P. Morgan Asset Management.Infrastructure returns represented by the “low risk” category of the MSCI Global Quarterly Infrastructure Asset Index. Data show rolling one-year returns from income and capital appreciation. The chart shows the full index history, beginning in the first quarter of 2009.Past performance is not indicative of future results. Alternative investments carry more risk than traditional investments and are recommended only for long-term investment. Some alternative investments may be highly leveraged and rely on speculative investments that can magnify the potential for loss or gain. Diversification does not guarantee investment returns or eliminate the risk of loss.Data is based on availability as of August 31, 2019.

Infr

astr

uctu

re

Global core infrastructure returnsRolling 4-quarter returns from income and capital appreciation


18

19

Guide to Alternatives |U.S. regulated utilities

Source: Bloomberg, SNL.com, Moody’s, America’s Electric Utilities, J.P. Morgan Asset Management. RoE is return on equity, which is the amount of net income returned as a percentage of shareholders’ equity. Grey bars denote recessions. Data is based on availability as of August 31, 2019.

Infr

astr

uctu

re

U.S. utilities' average allowed return on equity and interest rates

Recession

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101

105

109

113

117

121

125

129

133

137

141

145

149

153

157

161

165

169

173

177

181

185

189

193

20

20.5

21

21.5

22

22.5

23

23.5

24

24.5

25

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Electric allowed RoE Natural gas allowed RoE Utility bond yield 10-year Treasury yield

19

20


6

8

10

12

14

16

18

20

2 7 12 17

Source: Moody’s, SNL.com, BLS, JPMAM Global Alternatives Research, J.P. Morgan Asset Management. RoE is return on equity, which is the amount of net income returned as a percentage of shareholders’ equity. Average cost of debt is represented by the trailing 6-month average of Moody’s utilities yields.Data is based on availability as of August 31, 2019.

U.S. utilities: RoE, inflation and rates

U.S. utilities’ return on equity and average cost of debt1980-2018

U.S. utilities’ return on equity and inflation ROE (2-year lagged), CPI % change vs. prior year, 1980-2018

Infr

astr

uctu

re

3

5

7

9

11

13

15

17

0 2 4 6 8 10 12 14Inflation (%)

Ret

urn

on e

quity

(%)

R2 = 0.52

Ret

urn

on e

quity

(%)

Cost of debt (%)

R2 = 0.96

20

21


Source: International Renewable Energy Agency, Lazard, J.P. Morgan Asset Management. *LCOE is levelized cost of energy, the net present value of the unit-cost of electricity over the lifetime of a generating asset. It is often taken as a proxy for the average price that the generating asset must receive in a market to break even over its lifetime.Data is based on availability as of August 31, 2019.

Global renewable energy

Global renewable generation capacityGigawatts

Cost of wind, solar, natural gas and coalMean LCOE*, dollar per megawatt hour

Infr

astr

uctu

re

$0

$50

$100

$150

$200

$250

$300

$350

$400

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Wind

Solar

Natural gas

Coal

0

200

400

600

800

1,000

1,200

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Wind

Solar

Bioenergy

Geothermal

21

22


Source: CPB Netherlands Bureau for Economic Policy Analysis, Clarksons, FactSet, J.P. Morgan Asset Management.Dry product consists of coal, ore, soybeans and bulk trade. Wet product consists of chemicals and oil trade. Data is based on availability as of August 31, 2019.

Global trade

Tran

spor

t

World seaborne trade by productEstimated trillion ton miles

22

World trade volumeYear-over-year, % change, 3-month moving average, monthly

Average: 4.9%

Jun. 2019: -0.4%

0

10

20

30

40

50

60

70

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Dry bulk

Oil and oil products

Container

Gas

23

Guide to Alternatives |Global banks’ shipping finance

Source: Dealogic, UNCTAD, J.P. Morgan Asset Management.Data is based on availability as of August 31, 2019.

0

50

100

150

200

250

300

350

400

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Deal value (Billions USD) No. of deals

Shipping loans volume

Tran

spor

t

Age distribution of world fleet Percent

0 - 4 13.75%5 - 9 22.01%10-14 13.25%15-19 8.54%20+ 42.46%

23

24

Guide to Alternatives |Global shipping dynamics

Source: UNCTAD, Clarksons, J.P. Morgan Asset Management.Supply data refer to total capacity of the container-carrying fleet, including multipurpose vessels and other types of vessels with some container-carrying capacity. Demand growth is based on million TEU lifts.Data is based on availability as of August 31, 2019.

Growth of supply and demand in container shipping2007-2017, percent

Tran

spor

t

24

-10%

-5%

0%

5%

10%

15%

20%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

SupplyDemand

25

Guide to Alternatives |Private market dynamics

Source: Preqin, Pitchbook, J.P. Morgan Asset Management.Data is based on availability as of August 31, 2019.

Priv

ate

mar

kets

First time private equity fundsFirst time funds % total funds closed by year

Global private credit & equity fundraisingBillions USD

Global private capital dry powderTrillions USD

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Private debtPrivate equity

25

$326

$419 $423

$521$584

$466

$221

$77

$79$103

$117

$132

$118

$49

$0

$100

$200

$300

$400

$500

$600

$700

$800

'13 '14 '15 '16 '17 '18 '19

Private debtPrivate equity

0%

5%

10%

15%

20%

25%

30%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

2019: 10.1%

26


Source: Pitchbook, S&P LCD, J.P. Morgan Asset Management.Data is based on availability as of August 31, 2019.

Private equity deals and multiples

U.S. LBOs: purchase price multiplesEquity and debt over trailing EBITDA

Priv

ate

mar

kets

Global private equity dealsShare of total

26

0%

10%

20%

30%

40%

50%

60%

Traditionalbuyout

Secondarybuyout

Add-on Growthequity/platform

creation

2019Average (2006-2Q19)

4.6x5.4x 5.3x

6.1x

5.0x

3.8x4.6x

4.9x 5.1x 5.3x5.7x 5.6x 5.4x 5.7x 5.8x 5.8x

2.6x

3.0x 3.1x

3.5x

4.0x

3.8x

3.8x3.7x 3.5x 3.4x

3.9x4.5x

4.5x

4.9x 4.8x5.3x

0

2

4

6

8

10

12

'04 '06 '08 '10 '12 '14 '16 '18

Equity

Debt

27


Sources: BEA, Pitchbook, FactSet, J.P. Morgan Asset Management.

Software investment is represented by nonresidential fixed investment in software.

Data is based on availability as of August 31, 2019.

Private equity deal trends

Oil prices and natural resource dealsEnergy & materials deal count, WTI oil price, y/y % change

Software investment and private equity% U.S. PE deals targeting software companies, software inv. % GDP

Priv

ate

mar

kets

27

-60%

-40%

-20%

0%

20%

40%

60%

80%

'11 '12 '13 '14 '15 '16 '17 '18 '19

Energy & materials deals(2Qma, 1Q lag)

WTI oil price

1.2%

1.3%

1.4%

1.5%

1.6%

1.7%

1.8%

1.9%

2.0%

5%

10%

15%

20%

25%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Software % total PE dealsSoftware investment % GDP

28


Private vs. public equity sector weights

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

'91 '94 '97 '00 '03 '06 '09 '12 '15 '18

Sources: Cambridge Associates, World Federation of Exchanges, Standard & Poor’s, J.P. Morgan Asset Management.*Number of listed U.S. companies is represented by the sum of number of companies listed on the NYSE and the NASDAQ.Data is based on availability as of August 31, 2019.

Number of listed U.S. companies*

2018: 5,343

Priv

ate

mar

kets

U.S. public vs. private equity 28

3.0%

3.4%

4.5%

8.8%

13.0%

13.6%

4.9%

18.8%

30.1%

7.8%

7.0%

2.6%

13.8%

14.1%

9.5%

6.3%

12.9%

26.0%

0% 5% 10% 15% 20% 25% 30% 35%

Other*

Cons. Staples

Materials

Financials

Healthcare

Industrials

Energy

Cons. Disc.

Tech

S&P 500U.S. private equity

29


-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Global private equity return dispersion

Source: Cambridge Associates, J.P. Morgan Asset Management. The Cambridge Associates Modified Public Market Equivalent (mPME) methodology determines how much the private equity funds’ cash flows would have earned had they been invested in the MSCI All-Country World Index (ACWI) instead. Data is based on availability as of August 31, 2019.

Priv

ate

mar

kets

Global private equity IRR by vintage year

29

Median

MSCI ACWI mPME (modified public market equivalent)

Top quartile

Bottom quartile

30


U.S. IPOs with negative earningsPercent of all initial public offerings that year

Number of IPOs

Private equity exit activity

Priv

ate

mar

kets

Sources: Pitchbook, Jay Ritter, University of Florida, J.P. Morgan Asset Management.


Private equity exits by typeBillions USD

0%

20%

40%

60%

80%

100%

'80 '84 '88 '92 '96 '00 '04 '08 '12 '16

2018: 81%

0

100

200

300

400

500

600

700

800

'80 '84 '88 '92 '96 '00 '04 '08 '12 '16

30

2018: 134

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Jun-19 06-'18 avg.Secondary buyout 37.8% 34.3%IPO 21.7% 15.9%Corporate acquisition 40.6% 49.8%

31


Sources: Preqin, Greenhill, London Business School, Pitchbook, J.P. Morgan Asset Management. *2018 data is for Q1 – Q3. Data is based on availability as of August 31, 2019.

Private equity distributions and the secondary market

Global capital calls and distributionsBillions USD

Secondary market transaction volume and pricingSecondary buyouts by year, $bn, percent of net asset value (NAV)

Priv

ate

mar

kets

50%

60%

70%

80%

90%

100%

110%

120%

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Secondary buyouts (LHS, $bn)

Secondary price (RHS, % of NAV)

31

-$600

-$400

-$200

$0

$200

$400

$600

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Capital distributedCapital calledNet distribution

*

32


32

ExpansionManufacturing ISM > 50 and rising

Credit returns across recent economic cycles: 2004 - 2019

Late cycle coolingManufacturing ISM > 50 and falling

RecessionManufacturing ISM < 50 and falling

TurnaroundManufacturing ISM < 50 and rising

Priv

ate

mar

kets

Source: Institute for Supply Management, Bloomberg Barclays, Credit Suisse, Cliffwater, J.P. Morgan Asset Management. The ISM Manufacturing Index is a nationwide survey of purchasing executives. A reading greater than 50 indicates increased economic activity and a reading less than 50 indicates decreased economic activity. 10y UST: Bloomberg Barclays U.S. Treasury Bellwethers (10y), 2y UST: Bloomberg Barclays U.S. Treasury Bellwethers (2y), U.S. IG: Bloomberg Barclays U.S. Aggregate Corporate Investment Grade, U.S. HY: Bloomberg Barclays U.S. Aggregate Corporate High Yield, U.S. leveraged loans: Credit Suisse Leveraged Loan Index, U.S. direct lending: Cliffwater Direct Lending Index. All returns are from 12/31/2004 through 6/30/2019, except for U.S. direct lending which is through 3/31/2019. Data is based on availability as of August 31, 2019.

32

-0.4%

0.2%

1.1%

3.0%2.3%

3.1%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

10y UST 2y UST U.S. IG U.S. HY U.S.leveraged

loans

U.S.direct

lending

3.1%

1.4%

-0.9%

-3.8%-4.6%

-0.6%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%


loans

U.S.direct

lending

2.4%

0.7%

1.6%1.4%

0.9%

2.3%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


loans

U.S.direct

lending

-1.6%-0.1%

4.6%

9.4%8.1%

2.3%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%


loans

U.S.direct

lending

33


72%

46%

20%13% 9%

28%

54%

80%87% 91%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1994 2000 2006 2012 2018

Source: Ares, S&P LCD, J.P. Morgan Asset Management.Covenant-lite loans are a type of financing that is issued with fewer restrictions on the borrower with regard to collateral, level of income, and loan payment terms, and fewer protections for the lender, including financial maintenance tests that measure the debt-service capabilities of the borrower.Data is based on availability as of August 31, 2019.

Credit market participants and issuance

U.S. leveraged loan market participantsShare of total market, percent

Covenant-lite loan issuancePercent of U.S. issuance in institutional leveraged loans

Priv

ate

mar

kets

Global banks Non-bank companies and funds

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

33

34


Source: S&P LCD, J.P. Morgan Asset Management. Data is based on availability as of August 31, 2019.

U.S. direct lending: Pricing and characteristics

Priv

ate

mar

kets

Middle market yields and leveragePercent, leverage is debt/EBITDA

U.S. middle market lending: purchase price multiplesDeals ≤ $50M EBITDA

0x

1x

2x

3x

4x

5x

6x

7x

0%

2%

4%

6%

8%

10%

12%

14%

Bank 1stLien

Non-Bank1st Lien

Unitranche 2nd Lien Mezzanine

Yield Leverage

34

0

2

4

6

8

10

12

14

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Subordinated debtSenior debt

Equity

35

Guide to Alternatives |Distressed credit: Non-performing loans

Source: International Monetary Fund, J.P. Morgan Asset Management.A nonperforming loan is a sum of borrowed money upon which the debtor has not made the scheduled payments for a period of usually at least 90 days for commercial banking loans and 180 days for consumer loans. Nonpayment means there have been zero interest or principal payments made on the loan within a specified period. Any definition of a nonperforming loan will depend on the loan's terms and agreement as there is no definitive definition of a nonperforming loan. NPL data based on most recently available numbers from the IMF. Color coding based on quintiles.Data is based on availability as of August 31, 2019.

Priv

ate

mar

kets

Low concentration of non-performing loans

High concentration of non-performing loans

Nonperforming loans to total gross loansPercent, 2018

Russia10.7%

Australia0.9%

Japan1.1%

Indonesia2.6%

India10.3%

Philippines1.8%Malaysia

1.5%Kenya14.0%

United States0.9%

Canada0.4%

Mexico2.1%

Brazil3.2%

Argentina2.3%

South Africa3.7%

Spain4.1%

FRA2.9%

Portugal11.7%

ITA9.9%

Greece45.6%

GER1.5%

FIN1.5%

SWE1.0%NOR

2.4%

Ukraine54.3%

U.K.1.2%

35

36

Guide to Alternatives ||Hedge fund strategy returns

Source: MSCI, Bloomberg Barclays, HFRI, FactSet, J.P. Morgan Asset Management. Global equities reflect the MSCI AC World Index and global bonds reflect the Bloomberg Barclays Global Aggregate Index. All hedge fund returns are from HFRI. HFRI Composite: HFRI FW Composite Index. Returns may fluctuate as hedge fund reporting occurs on a lag. Please see disclosure pages for index definitions. YTD (year-to-date) returns are through 6/30/2019.Data is based on availability as of August 31, 2019.

Hed

ge fu

nds

36

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Ann. Vol.

Globa l Equitie s

Globa l Equitie s

Globa l Bonds

Globa l Equitie s

Globa l Equitie s

Globa l Ma c ro

Eq. Ma rke t Ne utra l Distre sse d

Globa l Equitie s

Me rge r Arbitra ge

Globa l Equitie s

Globa l Equitie s

Globa l Equitie s

3 5 .4 % 13 .2 % 5 .6 % 16 .8 % 2 3 .4 % 5 .6 % 4 .3 % 15 .1% 2 4 .6 % 3 .3 % 16 .6 % 10 .0 % 15 .6 %

Distre sse d Distre sse dMe rge r

Arbitra geRe la tive

Va lueEquity

Long/ShortGloba l

Equitie sMe rge r

Arbitra geGloba l

Equitie sEquity

Long/ShortRe la tive

Va lueEquity

Long/ShortRe la tive

Va lueEquity

Long/Short

2 8 .1% 12 .1% 1.5 % 10 .6 % 14 .3 % 4 .7 % 3 .3 % 8 .5 % 13 .3 % - 0 .4 % 9 .3 % 6 .9 % 8 .6 %

Re la tive Va lue

Re la tive Va lue

Re la tive Va lue Distre sse d Distre sse d

Re la tive Va lue

Re la tive Va lue

Re la tive Va lue

HFRI Composite

Eq. Ma rke t Ne utra l

HFRI Composite Distre sse d Distre sse d

2 5 .8 % 11.4 % 0 .1% 10 .1% 14 .0 % 4 .0 % - 0 .3 % 7 .7 % 8 .6 % - 1.0 % 7 .2 % 6 .8 % 7 .8 %

Equity Long/Short

Equity Long/Short Distre sse d

Equity Long/Short

HFRI Composite


Equity Long/Short

Equity Long/Short

Globa l Bonds

Globa l Bonds

Globa l Bonds

Equity Long/Short

HFRI Composite

2 4 .6 % 10 .5 % - 1.8 % 7 .4 % 9 .1% 3 .1% - 1.0 % 5 .5 % 7 .4 % - 1.2 % 5 .6 % 5 .6 % 6 .1%

HFRI Composite

HFRI Composite


HFRI Composite

Re la tive Va lue

HFRI Composite

HFRI Composite

HFRI Composite Distre sse d Distre sse d

Re la tive Va lue

HFRI Composite

Globa l Bonds

2 0 .0 % 10 .2 % - 2 .1% 6 .4 % 7 .1% 3 .0 % - 1.1% 5 .4 % 6 .3 % - 1.7 % 5 .5 % 4 .9 % 5 .6 %

Me rge r Arbitra ge

Globa l Ma c ro

Globa l Ma c ro

Globa l Bonds


Equity Long/Short

Globa l Ma c ro

Me rge r Arbitra ge

Re la tive Va lue

Globa l Ma c ro

Globa l Ma c ro

Me rge r Arbitra ge

Re la tive Va lue

11.6 % 8 .1% - 4 .2 % 4 .3 % 6 .5 % 1.8 % - 1.3 % 3 .6 % 5 .1% - 4 .1% 4 .8 % 4 .1% 4 .8 %

Globa l Bonds

Globa l Bonds

HFRI Composite


Me rge r Arbitra ge

Me rge r Arbitra ge

Globa l Equitie s



HFRI Composite Distre sse d

Globa l Bonds

Globa l Ma c ro

6 .9 % 5 .5 % - 5 .3 % 3 .0 % 4 .7 % 1.7 % - 1.8 % 2 .2 % 4 .9 % - 4 .7 % 4 .7 % 2 .5 % 3 .7 %

Globa l Ma c ro

Me rge r Arbitra ge

Globa l Equitie s

Me rge r Arbitra ge

Globa l Ma c ro

Globa l Bonds

Globa l Bonds

Globa l Bonds

Me rge r Arbitra ge

Equity Long/Short

Me rge r Arbitra ge



4 .3 % 4 .6 % - 6 .9 % 2 .8 % - 0 .4 % 0 .6 % - 3 .2 % 2 .1% 4 .3 % - 7 .1% 3 .2 % 2 .5 % 2 .8 %



Equity Long/Short

Globa l Ma c ro

Globa l Bonds Distre sse d Distre sse d

Globa l Ma c ro

Globa l Ma c ro

Globa l Equitie s


Globa l Ma c ro

Me rge r Arbitra ge

1.4 % 2 .9 % - 8 .4 % - 0 .1% - 2 .6 % - 1.4 % - 8 .1% 1.0 % 2 .2 % - 8 .9 % 1.3 % 1.0 % 2 .5 %

2009-2018

37

Guide to Alternatives |Hedge funds and manager selection

Hedge fund manager dispersionBased on returns from 2009 – 2018

Sources: HFRI, J.P. Morgan Asset Management. Manager dispersion is based on: 2009 – 2018 monthly returns for hedge funds. Blue bar denotes median. All hedge funds: Fund Weighted Composite Index, Equity market neutral: Equity hedge – equity market neutral, Event-driven: Event-Driven (Total), Relative value: Relative Value (Total), Relative value multi-strategy: Relative Value Multi-Strategy, Macro total: Macro (Total), Equity hedge: Equity Hedge (Total), Emerging markets: Emerging Markets Global. Data is based on availability as of August 31, 2019.

37

Hed

ge fu

nds

28.0%

-11.2%

18.1%

-0.7%

-8.8%

18.7%

-6.3%

23.0%

-2.2%

19.6%17.2%

-3.5%

26.2%

-16.3%

34.0%

-13.6%

-9.8%

23.7%Top quartile

Bottom quartile

Med.

-20%

-10%

0%

10%

20%

30%

40%

All hedge funds Fixed incomerelative value

Equity marketneutral

Event driven Relative valuetotal

Relative valuemulti-strategy

Macro total Equity hedge Emergingmarkets

38


-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Hedge fund flows

Hedge fund net asset flowBillions USD

Sources: HFRI, J.P. Morgan Asset Management. Data is based on availability as of August 31, 2019.

38

Hed

ge fu

nds

YTD 2019:-$17.8bn

39


Global data sizeZettabytes

Computing power: transistors per microprocessorLog

Hedge fund exposures

Sources: FactSet, Our World in Data, IDC, J.P. Morgan Asset Management. Zettabyte is a measure of digital information storage. One zettabyte is equivalent to a billion terabytes.


Sector exposure of top 50 hedge funds% of total portfolio

39

14.6%

12.6% 12.4%

8.3% 8.0%

6.7%

4.6% 4.3%3.8% 3.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Hed

ge fu

nds

1.E+031.E+04

1.E+05

1.E+061.E+07

1.E+08

1.E+091.E+10

1.E+11

'71 '76 '81 '86 '91 '96 '01 '06 '11 '16

0

10

20

30

40

50

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Size of global data

40

Guide to Alternatives |Interest rates and volatility

Source: CBOE, Federal Reserve, FactSet, J.P. Morgan Asset Management.Data is based on availability as of August 31, 2019.

Implied volatility and the federal funds rateVIX index level, 6-month moving average, Fed funds %, 2-year lead

Hed

ge fu

nds

VIX (6-month moving avg.)Federal funds target rate

(2-year lead, %)

40

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

10

15

20

25

30

35

40

45

50

55

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

41


-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Hedge funds and traditional portfolios

Sources: HFRI, Standard & Poor’s, Bloomberg, Barclays, FactSet, J.P. Morgan Asset Management.*60/40 portfolio is 60% S&P 500 and 40% Bloomberg Barclays U.S. Aggregate. Hedge funds represented by HFRI FW Composite.Data is based on availability as of August 31, 2019.

Hedge fund correlation with a 60/40 stock-bond portfolio*1990 – present, monthly

Hed

ge fu

nds

41

9/11, Post tech-bubble recession

Tech bubble

Global financial crisis

Eurozone double-dip

Energy weakness, dollar strength

Government shutdown(s)Early 1990’s

Recession/ Fed

tightening concerns

42


0.5%0.3% 0.3%

-0.2%

-0.8%-0.6%

0.6%

0.6% 0.7%

0.1%

0.0%

-0.3%

1.1%

0.9%1.0%

0.0%

-0.8%-0.9%-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

10-15 15-20 20-25 25-30 30-35 >35-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0

10

20

30

40

50

60

70

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Source: HFRI, CBOE, MSCI, FactSet, J.P. Morgan Asset Management.Historical beta is based on regression analysis, where the HFRI is the dependent variable and the MSCI AC World Index is the independent variable. Monthly VIX reading is an average.Data is based on availability as of August 31, 2019.

Hedge funds and volatility

Hedge funds and volatilityAverage monthly hedge fund returns by VIX level, 1990 - present

Hed

ge fu

nds

Macro hedge fund relative performance & volatilityVIX index level, y/y change in rel. perf. of HFRI Macro index

VIX

Macro hedge fund relative performance to HFRI

BetaAlpha

42

43


-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

Hedge funds and the U.S. equity market

Source: HFRI, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.Data is based on availability as of August 31, 2019.

Hed

ge fu

nds

Average: 0.44Jun. 2019:

0.40

Hedge fund beta to the S&P 500Rolling 12-month beta

43

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J.P. Morgan Asset Management – DefinitionsAlpha – Is the difference between an investment’s return and its expected return, given its level of beta.Accredited investor – Defined by Rule 501 of Regulation D, an individual (i.e. non-corporate) "accredited investor" is either a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase OR a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. For the complete definition of accredited investor, see the SEC website. Capital commitment – A Limited Partner’s obligation to provide a specific amount of capital to a Closed-end Fund (defined below) for investments. The Capital Commitment is “drawn down” or “called” over time, meaning a portion of the commitment must be wired to the Closed-end Fund by a set date. Capital called – The amount of capital wired to a fund that is “drawn down” over time as the General Partner selects investments. Carried interest (aka incentive fee) – A fee paid to a fund manager for generating returns over a benchmark; calculated as a percentage of investment profits over a hurdle rate and charged in addition to a management fee. In Private Equity, carried interest (typically up to 20% of the profits) becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate. Catch-up – This is a common term of the private equity partnership agreement. Once the general partner provides its limited partners with their preferred return, if any, it then typically enters a catch-up period in which it receives the majority or all of the profits until the agreed upon profit-split, as determined by the carried interest, is reached. Clawback – A clawback obligation represents the general partner's promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. Generally, this means that the general partner may not keep distributions representing more than a specified percentage (e.g., 20%) of the fund's cumulative profits, if any. When triggered, the clawback will require that the general partner return to the fund's limited partners an amount equal to what is determined to be "excess" distributions. Closed-end fund – A fund that has a finite capital raising period and stated term (i.e. 5 years, 10 years, etc.). Clients will have the ability to commit to the fund during the set fundraising period, after which point the fund will be closed to new investors. Unlike an open-ended fund, there is limited flexibility on when a client may invest and there is no liquidity/redemptions. Clients who invest are obligated to remain in the fund for the duration of the term; they will be required to fulfill capital calls during the stated commitment period and will receive periodic distributions based on underlying monetization of investments. Commitment period – The period of time within which the fund can make investments as established in the Limited Partnership Agreement (“LPA”), meaning the governing document, for the fund. Direct co-investment – An investment made directly in a single underlying asset of a fund. Example: The General Partner elects to invest in an operating company alongside a fund. Dispersion – Difference between the best-performing and worst-performing strategies.Distressed – A financial instrument in a company that is near or is currently going through bankruptcy. This usually results from a company's inability to meet its financial obligations. As a result, these financial instruments have suffered a substantial reduction in value. Distressed securities can include common and preferred shares, bank debt, trade claims (goods owed) and corporate bonds. Distributions – The total proceeds distributed by the fund to the Limited Partners, which may include both return of capital and gain distributions.General partner – The managing partner of a Limited Partnership. The General Partner is managed by the asset management team responsible for making fund investments (i.e., the intermediary between investors with capital and businesses seeking capital to grow).Gross IRR – The dollar-weighted internal rate of return, before management fees and carried interest generated by the fund.

Hedge Fund strategies:Relative Value/Arbitrage involves the simultaneous purchase and sale of similar securities to exploit pricing differentials. Strategies in this sector offer potential to generate consistent returns while minimizing directional risk.Opportunistic/Macro strategies involve investments in a wide variety of strategies and instruments, which often have a directional stance based on the manager’s global macroeconomic views. Long/Short (L/S) Equity involves long and/or short positions in equity securities deemed to be under- or overvalued, respectively. Exposures to sectors, geographies, and market capitalizations are often flexible and will change over time. Merger Arbitrage/Event Driven strategies invest in opportunities created by significant corporate transactions and events which tend to alter a company’s financial structure or operating strategy. Distressed Securities invests in debt and equity securities of firms in reorganization or bankruptcy.

High watermark – The highest peak in value that an investment fund has reached. This term is often used in the context of fund manager compensation. For example, a $1,000,000 investment is made in year 1 and the fund declines by 50%, leaving $500,000 in the fund. In year 2, the fund returns 100%, bringing the investment value back to $1,000,000. If a fund has a high watermark, it will not take incentive fees on the return in year 2, since the investment has never grown. The fund will only take incentive fees if the investment grows above the initial level of $1,000,000. Hurdle rate – The rate of return that the fund manager must meet before collecting incentive fees.Internal rate of return (IRR) – The dollar-weighted internal rate of return. This return considers the daily timing of cash flows and cumulative fair stated value, as of the end of the reported period. J-Curve effect – Occurs when funds experience negative returns for the first several years. This is a common experience, as the early years of the fund include capital drawdowns and an investment portfolio that has yet to mature. If the fund is well managed, it will eventually recover from its initial losses and the returns will form a J-curve: losses in the beginning dip down below the initial value, and later returns show profits above the initial level. K-1 – Tax document issued for an investment in partnership interests to report your share of income, deductions and credits. (Note that Private Investments generally issue a Schedule K-1 instead of a Form 1099 for tax reporting. K-1s may at times be issued later than 1099s, requiring investors to file for an extension).Limited partner – An investor in a Limited Partnership, which is a form of legal entity used for certain hedge funds, private equity funds and real estate funds. Management fee – Fee paid to a fund manager for managing the fund; typically calculated as a percentage of assets under management.Mezzanine finance – Loan finance that is half-way between equity and secured debt, either unsecured or with junior access to security. A mezzanine fund is a fund focusing on mezzanine financing. Multiple of Invested Capital (MOIC) – Calculation performed by adding the remaining (reported) value and the distributions received (cash out) and subsequently dividing that amount by the total capital contributed (cash in). Net asset value (NAV) – This is the current fair stated value for each of the investments, as reported by the administrator of the fund. Net IRR – The dollar-weighted internal rate of return, net of management fees and carried interest generated by the fund. This return considers the daily timing of all cash flows and the cumulative fair stated value, as of the end of the reported period.

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J.P. Morgan Asset Management – DefinitionsOpen-ended fund – As it relates to private alternatives (not mutual fund structure), an open-ended fund is a fund that has no stated term or maturity and allows clients to invest and redeem on an ongoing basis. The frequency of investments (aka subscriptions) and / or redemptions may vary. Redemptions from open-ended private alternative funds generally require advance notice in writing.Pari Passu – At an equal rate or pace, without preference. Portfolio company – A business entity that has secured at least one round of financing from one or more private equity funds. A company in which a given fund has invested. Post-money valuation – The valuation of a company immediately after the most recent round of financing. For example, a venture capitalist may invest $3.5 million in a company valued at $2 million “pre-money” (before the investment was made). As a result, the startup will have a post money valuation of $5.5 million. Pre-money valuation – The valuation of a company prior to a round of investment. This amount is determined by using various calculation methods, such as multiples to earnings or comparable to other private and/or public companies. Preferred return – Also known as Hurdle Rate. Private equity – Equity capital invested in a private company through a negotiated process. Primary investment – An investment made in a newly formed limited partnership. Real estate investment trust (REITs) – Stocks listed on an exchange that represent an interest in a pool of real estate properties.Realized value – The amount of capital extracted from an investment. Reported/remaining value – The current stated value for each of the investments in a fund, as reported by the General Partner of the fund. Return on equity (RoE) - Amount of net income returned as a percentage of shareholders' equity.Secondary market investment – The buying and selling of pre-existing investor commitments. Seed money – The first round of capital for a start-up business. Seed money usually takes the structure of a loan or an investment in preferred stock or convertible bonds, although sometimes it is common stock. Seed money provides startup companies with the capital required for their initial development and growth. Angel investors and early-stage venture capital funds often provide seed money. Tax documents – See K-1.Total value – The combination of market value and realized value of an investment. Shows the total worth of an investment. Unfunded commitment – Money that has been committed to an investment but not yet transferred to the General Partner. Venture capital – A specialized form of private equity, characterized chiefly by high-risk investment in new or young companies following a growth path in technology and other value-added sectors. Vintage year – The year of fund formation and first draw-down of capital. Write-down – A reduction in the value of an investment.

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J.P. Morgan Asset Management – Risks & disclosures

The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries toparticipate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current marketconditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investmentdecision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit andaccounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all availablerelevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxationagreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future resultsJ.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our Company’s Privacy Policy (https://www.jpmorgan.com/global/privacy). For further information regarding our local privacy policies, please follow the respective links: Australia (https://www.jpmorgan.com/country/AU/EN/privacy), EMEA (https://am.jpmorgan.com/us/en/asset-management/gim/mod/legal/external-privacy-policy), Japan(https://www.jpmorganasset.co.jp/wps/portal/Policy/Privacy), Hong Kong (https://am.jpmorgan.com/hk/en/asset-management/per/privacy-statement/), Singapore (http://www.jpmorganam.com.sg/privacy) and Taiwan(https://www.jpmrich.com.tw/wps/portal/Footer/Privacy). This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other Europeanjurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia)Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E), this advertisement orpublication has not been reviewed by the Monetary Authority of Singapore; in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of theInvestment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial ServicesAgency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorganAsset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in theUnited States by J.P. Morgan Institutional Investments, Inc. or JPMorgan Distribution Services, Inc., both are members of FINRA; J.P. Morgan Investment Management, Inc. or J.P. Morgan Alternative Asset Management,Inc.In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other countries in APAC, to intended recipients only.Copyright 2019 JPMorgan Chase & Co. All rights reserved.Unless otherwise stated, all data are as of August 31, 2019 or most recently available.

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