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Jacob Miller explores how macro trends and thematic opportunities shape long-term investment strategies
Key takeaways
- Successful investments often emerge when macroeconomic fundamentals align with compelling thematic trends, creating a supportive environment for long-term growth.
- Private markets asset classes respond differently to macroeconomic factors - venture capital emphasizes team and idea selection over macro trends, while real estate is heavily influenced by debt costs and supply-demand dynamics.
- A well-constructed private markets program balances complementary asset classes and diversifies investments to better navigate macroeconomic changes.
Transcript
One way we look at the world is where do fundamentals and interesting themes come together? All assets are subject to what's going on in the macroeconomic economy overall in terms of growth, inflation, discount rates, the actions of the Fed, risk premiums, and policy, but assets experience those differently.
As an easy example, equities like growth, and bonds don't. The same thing is true in private markets. What is also important in private markets, though, is that these are longer-term bets. You really want to see those ideas attached to thematic investments that look like they have, you know, 5 to 10 years to contribute to the growth of the economy and to provide value to investors. When you find a macroeconomic backdrop that's supportive to a sub-asset class and an investable theme in that sub-asset class, it's a really interesting setup to explore investing in that vintage.
But of course, not all private market asset classes are equally macro. Venture capital, especially at the early stage, for example, involves taking, you know, five, ten, or 12-year bets. What happens to growth and inflation over the next two years really is unlikely to matter to the companies that your VC partners are investing in. So that has a really low emphasis on the macro fundamental and a really high emphasis on picking the right teams, the right ideas, and the right themes.
On the other hand, real estate tends to be very macro, driven by the cost of debt and by supply and demand in certain metro areas. If you happen to also attach to a theme, you'll probably outperform the index. But it's rare to find a traditional core real estate offering that can perform well when the macro factors are against it.
So it's worth thinking about as you build out your private market program: How can these things best complement each other? What bets do I want to take, and what bets do I maybe want to try and diversify?
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