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Hodes Weill’s 2019 Market Commentary

Celebrating Ten Years – A Look Back as We Look Ahead

As we welcome in a New Year, we are back again with our Annual Market Commentary — Top Ten Market Observations. 2019 marks our tenth year in business as Hodes Weill & Associates.

To deconstruct each of the past ten years, we see that our industry has navigated a lot of complex situations which have resulted in many positive changes. Fund structures, transparency and governance have been evolving year-by-year, against the background of an investment market that has risen steadily since those frightening days of 2009 when we set up our first office (in a borrowed conference room!).

When the current market cycle corrects, we’ll all have new war stories to tell about what went wrong and ask ourselves: “did we miss the obvious?” But for now, investors and their managers and partners are looking back on ten years when they generated strong returns.

Needless to say, it is especially stark to compare the market environment at our inception in 2009 to the market that prevails today. Back then, the markets had shut down abruptly. Today, liquidity abounds. Ten years ago, we were bemoaning the looming “tsunami of debt” which was expected to be washing over us right about now. Huh? Now we talk about the “mountains of dry powder” waiting to be deployed.

This is not to say that the current market is without risk. If we’ve learned anything, we know that markets are fine until they’re not. However, other than idiosyncratic dislocation, today’s global market does appear to be reasonably balanced. There is strong demand for both real estate equity and debt investments. Global economic output is at a level that mostly supports new additions to supply. Leverage levels are rising but remain manageable. In other words, there is no obvious reason for a correction but that doesn’t mean we won’t have one.

History reminds us that it’s usually an external shock that jolts a balanced market. So, while we fret about the duration of the cycle, owners, managers and investors are continuing to carefully deploy more capital. It remains a strong investment market and there is a general sense that with the emphasis on longer duration investments and cycle durable leverage levels, there will be fewer prime holdings available in the future.

As we look ahead into 2019, we intend, as always, to keep our eyes and ears alert to trends and opportunities, and share them in future Market Commentaries. Meanwhile, to all our friends in the industry — clients, investors, consultants, advisors, service providers and competitors — we thank you for the opportunity to work together, and for your friendship and support over these past ten years.

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