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Page 4
FOURTH QUARTER 2012
way. Private debt in the form of mezzanine lending to middle market credits remains reasonably attractive, although total
return expectations may trend lower.
Real Assets Outlook
Real assets strategies performed well in 2012 and appear poised to continue this trend. Investors added inflation
protection strategies in many forms to their portfolios. Looking forward, inflation hedging strategies remain attractive in
the face of loose monetary policy around the globe.
Real estate continued to rebound in 2012, posting returns in public and private markets. Stabilized properties in core
markets are now priced near prior peaks. Opportunities remain in stressed, messy, small- to medium-sized properties,
those generally located in less-than-glamorous locations, and in some niche markets.
Within the energy sector, oil prices reacted to
economic and political activity during the
year. Crude oil prices ranged from over $100
per barrel early in the year, into the $80s midyear,
to ending the year at $92. 14 Natural gas
prices were driven by domestic production
and demand. Prices appear to have bottomed
mid-year before trending up to a five-year
high of $3.35/mmbtu at year-end. 15 Ongoing
development of the North American energy
industry offers a range of investment
opportunities in public and private strategies.
We continue to purse investments in direct
ownership of producing assets, energy
buyouts, and publicly traded master limited
partnerships (MLPs).
In other real assets strategies, timber
produced a 7.8% return in 2012, trending up
from five years of lackluster returns and
activity. 16 We remain unenthusiastic about
timber, choosing higher-returning strategies
for locked-up capital, but expect timber to
continue to benefit from the rebound in housing. Similar to timber, agriculture and other commodities can also provide
diversification and modest returns to a globally diversified portfolio.
In Summary
Performance Summary
Through 9/30/2012 Quarter 1 Year 3 Year* 5 Year* 10 Year* 20 Year*
Global Private Equity 3.8% 7.2% 4.2% 0.8% 3.7% 15.8%
U.S. Venture Capital 0.6% 7.2% 6.1% 1.8% 4.6% 19.6%
U.S. Buyouts 4.5% 15.1% 12.4% 4.7% 10.0% 9.9%
Distressed Bonds/Loans -1.1% 4.1% 10.5% -1.0% 8.1% n/a
Private Core Real Estate 5.1% 11.0% 10.9% 2.3% 8.3% 8.6%
Timber 1.4% 2.2% -0.5% 3.3% 7.6% 9.7%
S&P 500 Index 3.4% 30.2% 13.2% 1.1% 8.0% 8.5%
NASDAQ Composite 0.8% 29.0% 13.7% 2.9% 10.3% 8.7%
MSCI World Index 1.6% 22.3% 8.1% -1.6% 8.6% 7.2%
Inflation (CPI) + 5% 5.9% 6.9% 7.3% 7.1% 7.5% 7.5%
Through 12/31/2012 Quarter 1 Year 3 Year* 5 Year* 10 Year* 20 Year*
Distressed Bonds/Loans 2.7% 6.4% 7.2% 0.2% 7.8% n.a.
Private Core Real Estate 2.5% 10.5% 12.6% 2.1% 8.4% 8.8%
Timber 5.9% 7.8% 3.0% 2.7% 8.2% 8.9%
S&P 500 Index -0.4% 16.0% 10.9% 1.7% 7.1% 8.2%
NASDAQ Composite -3.1% 15.9% 10.0% 2.6% 8.5% 7.8%
MSCI World Index 2.6% 16.5% 7.5% -0.6% 8.1% 7.4%
Inflation (CPI) + 5% -0.2% 1.6% 2.0% 1.8% 2.4% 2.4%
Sources: Thomson Reuters, NCREIF (w w w .ncreif.org), Fund Evaluation Group, LLC * Annualized
We see select investments across private equity, private debt, and real assets strategies continuing to provide interesting
opportunities for generating returns in 2013. These ideas have not changed materially with the turn to a new year. We
expect the credit cycle to wane while equity (primary and secondary) and energy strategies dominate. A healthy pipeline
of U.S. private equity funds are expected to benefit from improvements in the relative cost position and innovation in
North America. These trends also will continue to pull real estate out of cyclical lows.
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