Executive Summary

Equity Markets

Global equities, as measured by the ACWI Index in USD, appreciated 11.5% in Q2 and are up 10.1% YTD. Equities (especially US markets) experienced significant volatility during the quarter. The ACWI Index swiftly declined by 10.1% from March-end through April 8th following the April 2nd Liberation Day tariff announcement (the S&P 500 declined by 15.0% during that same peri od). However, global equities rallied 17.4% (and the S&P 500 rallied by over 25% from intra-day lows) through June-end. The significant worldwide equity rally was a) driven by abating trade tensions following the Trump Administration’s walking back of draconian tariff rates (and issuing a 90-day pause for trade negotiations with various countries), b) continued strong corporate earnings especially in the US, c) resumption of the AI trade in the US, and d) favorable currency movement associated with significant weakening of the USD. Following the sharp rally and YTD appreciation, global stock valuations have increased to 18.7x forward P/E from 15.5x at the April lows. The S&P 500’s valuation has increased to 22.0x forward P/E from the 18.0x April lows. US valuations are near 15-year highs whereas international valuations are closer to historical averages. At current valuations, global and especially US equities are factor ing in significant positive expectations with regards to a) trade tensions continuing to ease, b) geopolitical tensions not worsening, and c) favorable growth prospects arising from tax legislation passage in the US.

Government Bonds and Investment Grade Credit

During Q2, the Barclays AGG Index was up 1.2% with US government and investment-grade corporate bonds up 0.8% and 1.6% respectively. Treasury bonds benefitted from high coupon rates while bond yields remained stable at Q2 end vs. Q1 end (despite significant volatility during the quarter). Investment-grade bond performance was driven by high coupon rates and narrowing spreads. Spreads initially sharply widened from 95bps to 120bps following the early April Liberation Day announcement but then narrowed to 83bps by June end. YTD, the Barclays AGG Index is up 4.0% with gains driven by high coupon rates and price appreciation from bond yields that have declined by 35bps to 50bps across the curve. Bond yields have declined in response to mixed economic data and favorable inflation readings, which have increased expectations for rate cuts over the rest of the year. The AGG has also benefitted from investment grade corporate bond spread compression.

High-Yield Bonds & Leveraged Loans

 US high-yield bonds were up 3.5% during Q2 with performance benefitting from high coupon yields, declining base rates, and tightening credit spreads. Spreads initially swiftly increased from 300bps to 450bps during the first week of April following the April 2nd Liberation Day tariff announcement before steadily retreating to end Q2 at 280bps as trade tensions abated and corporate earnings surpassed expectations. Leveraged loans were up 2.3% during the quarter, with performance benefitting from high coupon yields and tighter spreads.

Hedge Funds

Hedge funds (as measured by the HFRX Global Hedge Fund Index) were up 1.7% in Q2 and 2.4% YTD, with most strategies delivering positive performance. YTD, convertible arbitrage and long/short equity (+6.2% and +4.3%) performed best while
global macro / trend following strategies performed worst (-3.1%)

Private Equity

Preliminary data indicates the private equity returns rose 1.8% in Q1 (latest data due to lagged reporting). US PE Deal activity declined to $234bln in Q2 from $279bln in Q1 as volatile tariff policy and overall macro uncertainty led to a pause in new deal activity. However, YTD, deal activity is still up 60% YTD. Exits also declined sharply, with Q2 exit value of $119bln well below Q1’s $221bln figure. Still, exit value remained sharply higher than the quarterly levels of $50bln-$75bln seen through most of 2022 and 2023. Fundraising has slowed thus far in 2025, mirroring 2024’s slowdown following three strong prior fundraising years.

The PE secondaries market represents a bright spot for deal activity with a 45% YOY increase in deal value during Q1 2025 relative to Q1 2024. This buoyant activity follows a record $160bln year in 2024 in terms of transaction volume. Both the LP-led and GP-led segments of the secondary market are experiencing healthy demand.

Private Credit

Private Credit (measured by the Cliffwater Direct Lending Index) increased by 2.1% during Q1 2025. This performance was softer than previous quarters’ near 3.0% returns, with softer performance driven by slightly lower base rates and some negative mark-to-market impacts. Credit quality remains solid, and the percentage of loans in non-accrual status has remained stable. However, the percentage of income comprising paid-in-kind (PIK) rather than cash income has increased, which could portend future credit issues.  

Within sponsor-backed direct lending, tight spreads continue to persist at the larger end of the market with unitranche deals pricing in the SOFR + 450-475bps range. However, spread compression has been less severe in the middle market with spreads at a 500-550bps range. Private credit borrower demand remains robust for bespoke capital solutions providers and for asset-backed lending.

Private Real Estate

The private real estate market continued to experience a slight rebound in Q1, with the NCRIEF index up 1.3% in Q1 2025 (delayed reporting with a lag), marking the third consecutive quarter of positive performance. According to Green Street, prices for commercial real estate were relatively stable in Q1 and have appreciated by 5%
over the past year. In recent months, however, pricing has remained relatively flat given the economic uncertainty. Operating fundamentals vary by property type with
generally strong demand for apartment and industrial properties offset by surges
in supply. Retail fundamentals appear strongest, and office fundamentals appear
to have bottomed.