Executive Summary

Equity Markets

Global equities, as measured by the ACWI Index in USD, appreciated 7.6% in Q3 and are up 18.6% YTD. Strong performance was delivered across all major regions (+4.8% to +10.6% in Q3). Gains were attributable to abating tariff uncertainty, better than expected corporate earnings, and buoyant investor enthusiasm for AI-related themes. The Magnificent Seven continued to lead market performance, up 19% YTD and outpacing the S&P 500’s 14.7% return. Non-Mag 7 AI names like Broadcom, Oracle, and Palantir surged 43-140%, fueled by blowout earnings and growing investor enthusiasm for AI capex. Following this strong performance, equity valuations (especially in the US) have become stretched with the S&P 500 trading near 22x forward P/E—close to 15-year highs. The index has become increasingly concentrated, with AI-related themes now accounting for at least 40% of index exposure. This concentration, combined with full valuations and high expectations, presents potential risks should sentiment around AI capex sour or if earnings disappoint.

Government Bonds and Investment Grade Credit

During Q3, the Barclays AGG Index appreciated 2.0% with strong performance across both safe government bonds and investment-grade corporate bonds. Government bonds benefitted from high coupon rates coupled with Treasury bond yields declining by 10-15bps across most maturities. Investment-grade bond performance was driven by high coupon rates, declining bond yields, and modestly tighter spreads. YTD, the Barclays AGG Index is up 6.1% with gains driven by the combination of high coupon income and price appreciation from bond yields that have declined significantly. US Treasury yields currently range between 3.5% and 4.1% for most maturities (2-10 years). Credit spreads remain at historically tight levels across investment-grade corporate bonds, high-yield bonds, and leveraged loans, reflecting strong credit quality but leaving limited room for further compression.

High-Yield Bonds & Leveraged Loans

US high-yield bonds and leveraged loans delivered strong performance during Q3, benefitting from high coupon yields, declining base rates, and modestly tightening credit spreads. The combination of these factors drove positive returns across the riskier segments of fixed income. However, spreads remain at or near all-time tight levels. While credit quality has remained strong, these spreads are far below those typically experienced during recessionary periods, suggesting limited upside and potential vulnerability if economic conditions deteriorate.     

Hedge Funds

Hedge funds (as measured by the HFRX Global Hedge Fund Index) appreciated 3.2% in Q3 and 5.7% YTD, with all strategies contributing positively during the quarter. YTD, convertible arbitrage (+11.3%) and long-short equity (+8.4%) strategies performed best, capitalizing on equity market volatility and strong directional moves in select sectors. Global macro and trend-following strategies have lagged but still delivered positive returns for the year.

Private Equity

Private equity appreciated 3.3% during Q2 (lagged reporting) and 4.6% YTD. The lag versus large-cap public equities is due to lower exposure to technology and AI themes, as well as a lack of true price discovery as portfolio company exits still remain below historical trend levels. Deal valuations have remained largely stable despite the public market volatility. Fundraising has been challenging with YTD 2025 activity 20% below comparable-period 2024 levels. On a positive note, dry powder peaked in 2024 and modestly declined in 2025. The IPO market has firmed during 2025, and investment bankers are reporting a significant surge in activity following weakness earlier in the year that was largely attributed to tariff uncertainty. The secondaries market continues to represent a bright spot with record transaction volumes and healthy demand for both LP-led and GP-led deals.

Private Credit

Private Credit (measured by non-traded BDC performance) increased by 2.3% during Q2 2025 (lagged reporting). YTD, performance is trending towards 8-9% annualized returns, lower than the 11-13% achieved in 2023 and 2024 due to a combination of lower base rates and slight mark-to-market downward moves in loan carrying values. Credit quality remains solid with the percentage of loans in non-accrual status stable. However, the low headline default rate masks increasing use of liability management exercises, which may lead to stress down the road. Additionally, the percentage of income comprising paid-in-kind (PIK) rather than cash income has increased to 8% in Q2 2025 from 5.5% in 2022 and 2023, which could portend future credit issues. In the sponsor-backed lending space, spreads range between SOFR+450 (large end of the market) to SOFR+525-550 (lower middle market). Investors are increasingly allocating to asset-backed and specialty finance strategies where spreads are higher and less dry powder exists.

Private Real Estate

Private real estate continues to stabilize in both performance and pricing, demonstrating modest gains during Q2 (lagged reporting) and YTD. According to preliminary data, commercial real estate pricing was generally up 1-2% YTD across most property types. Operating fundamentals remain mixed: apartment rents are slightly down YOY due to still-high supply offsetting strong demand, industrial market rents are up 2.5% YOY with wide differences across locations and property types, and office rents are relatively flat with stronger demand for high-quality assets in specific markets. Rental demand remains strong for apartments and industrial sectors, but supply overhangs continue to restrain rent growth in many markets.