CAPITAL MARKETS PERSPECTIVES...The Energy Information Administration (EIA) now forecasts that the...

CAPITAL MARKETS PERSPECTIVES

SECOND QUARTER 2019

TABLE OF CONTENTS

I. PORTFOLIO MANAGERS’ OVERVIEW 1

II. ECONOMIC DASHBOARD AND MARKET INDICES 9

III. CHART OF THE QUARTER 12

IV. INVESTMENT STRATEGIES

Performing Credit 13

Middle Market Direct Lending 15

Energy 16

Distressed Debt 18

Merger & Convertible Arbitrage 20

Residential and Consumer Debt (RMBS/ABS) 21

Commercial Real Estate Debt (CMBS) 23

Real Estate – United States 25

Real Estate – Europe 27

Real Estate – Asia 29

Net Lease Real Estate 31

Private Equity 32

ANGELO GORDON is a privately-held registered investment advisor dedicated to alternative investing. The firm was founded in 1988 and currently manages approximately $33 billion. We seek to generate absolute returns with low volatility by exploiting inefficiencies in selected markets and capitalizing on situations that are not in the mainstream of investment opportunities. We creatively seek out new opportunities that allow us to remain a leader in alternative investments.

We have expertise in a broad range of absolute return strategies for both institutional and high net worth investors. Our dedicated team of employees seeks to deliver consistent, positive returns in all market environments. We have built our name on our breadth of talent, intensive research and risk averse approach to investing. Our long-term experience gives us the insight and patience to turn our vision into profitable, stable businesses.

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CELEBRATING 30 YEARS

PORTFOLIO MANAGERS’ OVERVIEW

PERFORMING CREDITLeveraged loans provided one of their largest gains in over a decade during the first quarter of 2019, with the J.P. Morgan index returning 3.89%. This performance is notable given the continued steady outflows from loan funds, a decline in CLO issuance, and falling interest rates. Outflows from loan funds now exceed $10 billion versus over $3.5 billion of inflows in the first quarter of 2018. Offsetting the technical pressure of outflows was an approximately 30% year-over-year decline in loan issuance, and refi/reset activity was off substantially – declining from over $150 billion in the first quarter of 2018 to less than $20 billion in the first quarter of 2019. Interestingly, second lien issuance increased to $10.7 billion during the quarter, a year-over-year increase of nearly $1.5 billion. As a niche market, we believe second liens can offer attractive relative value for investors with deep credit expertise and strong sponsor relationships. Fundamental performance of the asset class also remains positive, with the par-weighted default rate declining to a multi-year low of just over 1% in March 2019. Furthermore, a recent analysis by J.P. Morgan shows that, over the last five years, the return per unit of risk for leveraged loans is superior to numerous other asset classes, including the S&P 500, and both investment grade and high yield bonds.

While fund flows are closely monitored by loan investors, it is important to consider flows in the context of the size and composition of the loan market. The loan market has enjoyed substantial growth in recent years, more than doubling from approximately $575 billion at the end of 2012 to approximately $1.2 trillion today. The growth in the leveraged loan market was at the expense of the high yield bond market, which saw a corresponding decline in size. Over this same time period, retail loan mutual funds have also grown, fueled by rising interest rates attracting asset allocators. However, at approximately $125 billion, retail loan mutual funds remain – by a wide margin – the smallest portion of the loan investor base. Over $600 billion of CLOs are currently outstanding, making CLOs the largest holders of leveraged loans and a crucial source of demand for the loan market. Although CLO issuance started the year off rather slowly, it picked up as the first quarter progressed and 2019 issuance is expected to top $100 billion again. As we consider the overall loan buyer base, while retail fund outflows can cause selling pressure and negative sentiment in the market, we believe that CLOs – along with other sources of demand, such as SMAs – are more critical given their relative size. Additionally, they are generally longer-term holders of loans and unlikely to become forced sellers.

MIDDLE MARKET DIRECT LENDINGAfter a robust 2018, syndicated middle market loan volume dropped to a multi-year low of $23 billion in the first quarter of 2019. Refinancing volume tumbled over 50% and new money issuance declined roughly 30% quarter-over-quarter. Furthermore, the decline in sponsored issuance was more pronounced in the large middle market. However, syndicated volume does not tell the whole story, as lenders with strong direct origination platforms may often have a capital base that allows them to speak for an entire transaction, thereby avoiding the need to syndicate out a portion of the deal. Looking ahead to the second quarter, according to a recent middle market lender survey, 60% of lenders characterized their pipeline as decent, with an even higher percentage (70%) of sponsored lenders expecting their current pipeline to keep them well occupied. Given the sheer size of the U.S. middle market, we believe periods of lighter issuance activity are ultimately transitory and that the opportunity set remains robust, especially for well-established, experienced lenders.

With respect to fundamentals, lenders have not reported any broad-based, macro trends that would indicate a significant impending slowdown in overall economic growth, with nearly 70% indicating that borrower growth is flat to very slow and that overall portfolio performance is stable. With no significant fundamental trends of note, challenged credits remain idiosyncratic in nature and fail to come to fruition due to a variety of factors, including acquisition integration, margin pressure from labor costs, and EBITDA add-backs. As always, the best risk mitigants are credit selection, discipline in capital deployment, extensive upfront underwriting, and active portfolio management. While loan structures and documentation have generically weakened in the past several years, we believe there are significant differences across lenders, and that performance through the next cycle will reflect these differences.

Maureen D’AllevaPortfolio Manager

Trevor ClarkPortfolio Manager


ENERGYWTI has traded above $55 since February. Crude demand is strong and global inventories are declining; however, continued production growth by U.S. shale is a concern. Amidst its latest round of cuts, OPEC and affiliates have reduced production by nearly 1.5 million barrels per day through March, while supply outages in Iran, Libya, and Venezuela persist. Citing loss of market share, Russia remains a wildcard and may seek to end its participation during OPEC’s next scheduled meeting in June. The Energy Information Administration (EIA) now forecasts that the global crude markets will move into a deficit position during the second quarter of 2019.

Exhausted by commodity price volatility and persistently high capital expenditures, public market investors continue to shun the oil and gas and oilfield service sectors. A recent Goldman Sachs review of generalist equity investors indicated no appetite for oil and gas exposure. Equity valuations remain low and the market is closed to new issues.

The Credit Suisse Energy High Yield Index currently offers a yield of 8.2% – nearly 130 basis points wider than a year ago. Exploration & production (E&P) credits yield 8.9%. Only the largest energy issuers have accessed the energy high yield markets in 2019, with an average issue size of $570 million. Spring bank borrowing base season occurred in April. With multiple decreases in price decks since October 2018, we do not expect growth from this, the cheapest channel for senior secured capital. Finally, acquisition and divestiture (A&D) activity has declined severely, with deal volumes now down 91% since the fourth quarter of 2017.

Stepping back and looking at the last decade, clarity emerges from the innumerable datapoints on prices per barrel, yields to worst, and forward cash flow multiples. From a volatility standpoint, we see two very distinct phases of time. From January 2010 until July 2014 and July 2014 to the present, WTI saw a 40% increase in 30-day volatility – a marked difference with significant long-term implications for the supply of capital. The change corresponds with OPEC’s continuing attempt – launched in 2014 – to fight with U.S. shale for market share. Being a just-in-time supply source, U.S. shale is a formidable competitor.

This increased volatility has resulted in a new paradigm, as traditional capital providers – particularly public equity investors and high yield bond buyers – are exhausted by both volatile earnings streams and volatility in the prices of securities in which they typically invest. This liquid markets exhaustion, coupled with the withdrawal of banks, fewer asset sales, and a private equity exit problem, has made available capital scarce and more valuable, and should provide for a larger and richer investment opportunity set.

Todd DittmannPortfolio Manager

PORTFOLIO MANAGERS’ OVERVIEW (continued)

DISTRESSED DEBT The performance of high yield in the first quarter of 2019 was a sharp reversal of the returns realized in the final quarter of 2018, marking the prior period as another instance of a volatile but episodic “micro-cycle.” The recovery was driven in large part by the Federal Reserve’s signaling of patience with respect to future interest rate hikes. Following a -4.8% return in the fourth quarter of 2018, U.S. high yield gained 7.3% in the first quarter of 2019, surpassing the 6.3% return of the first quarter of 2003 as the strongest start to a calendar year for the asset class. Further, this quarter’s gains were the fourth highest quarterly return of the past twenty years. Of note, BB and B rated bonds – which returned 7.3% and 7.4%, respectively, in the first quarter of 2019 – outperformed lower-rated CCC bonds, which ended with a lagging 6.8% gain for the period. Performance of the European high yield market was also positive, recording a 5.6% quarterly gain on a local euro currency basis, as the ECB joined other central banks in a coordinated approach toward rates.

Fund flows of U.S. high yield mutual funds followed a similar reversal trend across the quarters. High yield and leveraged loan funds both experienced significant outflows of $22 billion in the fourth quarter of 2018. However, in the first quarter of 2019, as investors’ outlook on interest rate increases shifted, high yield funds took in over $12 billion of new capital – a substantial pivot from the $47 billion redeemed in 2018. While high yield flows were positive in the first quarter, an additional $10 billion of assets were withdrawn from loan funds. Outflows from floating-rate loan funds reached over $30 billion since the start of the fourth quarter of 2018, representing an estimated 20% of AUM in this segment.

U.S. high yield issuance totaled $66 billion in the first quarter of 2019, with the $27 billion of activity in March marking a 12-month high. Although volume was up sharply from the $19 billion recorded in the fourth quarter, which included no new high yield issuance in the U.S. or Europe in all of December, first quarter 2019 levels were approximately 10% lower year-over-year. In the loan market, new issuance was $64 billion through the first quarter of 2019, an over 70% decline from the $242 billion of issuance in the first quarter of 2018. In this market context, many borrowers took advantage of lower rates to refinance loans into longer maturity, fixed-rate bonds. In Europe, despite the positive returns for both euro-denominated loans and high yield, the primary markets were well below their first quarter 2018 issuance levels. European high yield had only 13 deals totaling approximately €7.4 billion in the first quarter of 2019, nearly 60% lower than first quarter 2018 volume, while loan issuance of €14.9 billion was over 50% lower year-over-year.

Ryan MollettHead of Global Distressed Debt

Dan PoundCo-Portfolio Manager


MERGER ARBITRAGEWhile the number of deals announced declined year-over-year, the first quarter of 2019 was among the strongest quarters in history for M&A volume, on both a U.S. and global basis. In the U.S., M&A volumes increased 35% year-over-year, led by the return of large deals, which accounted for 80% of all definitive deals announced during the quarter. The announcement of so many large deals is a welcome departure from the trend we’ve seen over the past few years. The volatility and steep decline in the equity market during the fourth quarter of 2018 helped sow the seeds for transformational deals such as Bristol-Myers Squibb’s acquisition of Celgene, Fiserv’s purchase of First Data Corporation, and Centene Corporation’s merger with WellCare Health Plans, Inc. Traditionally, large deals lead to wide merger arbitrage spreads; however, spreads narrowed during the quarter from initially wide levels to some of the tightest spreads we’ve seen, which led to solid performance for merger arbitrage investors. Spreads narrowed during the quarter in part due to the sequential and year-over-year declines in deals announced, as well as the deal characteristics of pending deals. Generally, the current deal universe has low regulatory and political risk.

Looking forward, M&A volumes are poised to remain strong. In addition to the factors that we’ve mentioned in the past, such as M&A financing remaining cheap and CEO and consumer confidence remaining elevated, there are other factors that will continue to drive M&A. With the addition of mainstream active investment funds that want to show how they are differentiated from passive investment vehicles, shareholder activism continues to increase every year. Geopolitical tensions – especially the ongoing U.S.-China trade dispute – will boost M&A activity if and when they are resolved. Additionally, technological disruption and cross-sector convergence are still in early stages and will impact many more industries moving forward. Finally, one factor that is seldom discussed but could have an impact on M&A volume is the 2020 U.S. presidential election. In the final two years of the Obama presidency, M&A volumes increased as elections can bring change and change leads to timing delays and policy uncertainty.

CONVERTIBLE ARBITRAGERisk assets across the board staged a very strong rebound from December’s sharp sell-off as concerns of an imminent recession receded. Global equity markets brushed aside global trade headwinds and generally softer economic data, particularly out of Europe, helped by the Fed and ECB policy U-turns. The MSCI World Index returned 12% in local currency terms in the first quarter. Similarly, credit markets rallied as the renewed search for yield displaced any worries about economic weakness. The strength in equities and credit boosted convertible bonds, leading to a 7.5% first quarter gain – the best quarterly performance since the first quarter of 2012. Convertible arbitrage strategies also fared well, with the Credit Suisse Convertible Arbitrage Index rising 2.9% in the first quarter, even as the forceful recovery in risk assets led to a moderation in volatility.

Global convertible new issuance picked up steam during the first quarter. The total deal volume amounted to $21.7 billion, driven again by the U.S. market ($10.5 billion), followed by Europe ($6.9 billion, but with one transaction alone representing $4.5 billion), and Asia ($4.3 billion). There was no new issuance in Japan in the first quarter.

There are signs to suggest investors remain constructive on volatility. Geopolitical concerns and the associated tail risks remain ubiquitous. The global growth outlook is challenging in the context of central banks, especially the ECB, having limited room to act and where fiscal policy responses may be required for the major economies to return to trend-like growth.

Gary WolfPortfolio Manager


David KaminCo-Portfolio Manager


RESIDENTIAL AND CONSUMER DEBT (RMBS/ABS)Spreads for mortgage- and asset-backed sectors generally tightened at the beginning of the year. The credit-risk transfer (CRT) market, which serves as a barometer of overall mortgage credit, found its footing following a volatile and illiquid year-end. Spreads initially rallied, as liquidity returned and further tightened later in the quarter – in sync with the broader market rally. However, within this rally, CRT also exhibited price tiering based upon structure, seasoning, and underlying collateral profile. After outperforming in the fourth quarter, legacy RMBS spreads tightened modestly but were relative underperformers versus other asset classes. Increased demand for other RMBS sectors, including short-duration, senior tranches of securitized non- and re-performing loans, also resulted in tighter spreads. General appetite for deeper-credit, asset-backed securities continued during the first quarter, with most new issue subordinate tranches well oversubscribed, while some senior tranches received less focus.

Quarterly new issuance of RMBS rose 12.7% year-over-year to $23.1 billion, predominantly driven by growth in the non-QM sector, which featured a few first-time issuers during the quarter. New issuance activity in non-QM rose dramatically from $958 million in the first quarter of 2018 to $5.66 billion in the first quarter of 2019, a 491% year-over-year increase. The non-QM market is positioned to grow, as credit availability modestly expands to underserved, creditworthy borrowers whose profile may not conform to agency and government mortgage underwriting criteria. ABS new issue started the year at $61.4 billion, a decrease of 8.8% year-over-year, primarily due to lower credit card and student loan ABS volume.

Home prices continued to climb, albeit at a slower pace than year-ago levels. The latest CoreLogic Case-Shiller report showed an increase in national home prices of 4.2% year-over-year. Mortgage data has been relatively mixed over the last several quarters, as borrowers faced affordability headwinds before some relief finally set in from reduced mortgage rates. Despite slowing growth year-over-year, home prices continue to remain well-supported by tight inventory levels across much of the nation.

After widening into the end of the year, agency MBS spreads found stability in the first quarter, despite a rally to the lows of the year in yields and a brief uptick in implied volatility. Supply was manageable during the quarter, and this – along with the dovish pivot by the Fed – helped support the sector. Contained volatility and reduced fear over materially higher rates should help support demand from banks and relative value buyers, but an uptick in seasonal supply and continued runoff of the Fed’s agency MBS holdings will likely limit spread tightening.

TJ DurkinCo-Portfolio Manager

Yong JoeCo-Portfolio Manager


COMMERCIAL REAL ESTATE DEBT (CMBS)January was a particularly strong month in the broader markets, as the U.S. Federal Reserve seemed to reverse course when it confirmed that – in light of slowing economic growth – it would revisit its previously planned interest rate hikes. In addition, the U.S. government shutdown ended and concerns over the U.S.-China trade dispute dissipated. Equity gains slowed later in the quarter but remained positive.

The CMBS industry held its annual conference in January, a week later than usual this year. We believe the extra week had a significant positive impact on the tone of the conference, as participants were able to take comfort in the broader shift in sentiment at the start of the new year. Most participants seemed generally constructive on CMBS for numerous reasons – commercial property fundamentals remain stable, underwriting standards continue to be reasonable, bond supply and demand imbalance offer strong technical support, and pricing was generally attractive following the meaningful sell-off at the end of 2018.

Armed with a newfound sense of confidence, industry participants returned to their desks and spreads began to tighten rapidly. During the quarter, new issue AAA bonds tightened by approximately 15 basis points while BBB securities tightened by more than 100 basis points. It is important to keep in mind that over the same period of time, 10-year swap yields declined by 30 basis points. The fourth quarter 2018 price declines and lower overall rates have made the product less attractive to conservative, yield-focused investors, such as insurance companies. We believe this technically driven, short-term gap in demand is creating attractive relative value opportunities in higher credit quality securities, which savvy investors can capitalize on.

Andrew SolomonPortfolio Manager


Adam SchwartzPortfolio Manager Head of Real Estate

Reid LiffmannCo-Portfolio ManagerU.S. Real Estate

Anuj MittalCo-Portfolio ManagerEurope Real Estate


REAL ESTATE

United StatesCommercial property transactions in the first quarter of 2019 dropped 11% year-over-year, as a dearth of entity-level transactions closed during the period. 2018 was the third biggest year ever for M&A and the peak year thus far post-financial crisis, so this drop-off was to be expected. Nevertheless, the 89% plunge in the first quarter took its toll on overall volume. The decline in investment activity persisted across deals of all types, including the sale of individual assets, which fell 8% year-over-year. Every major property sector – excluding apartments – posted double-digit year-over-year declines in transactions. Volume fell the most in the top six major metros, but was negative in other primary and secondary markets as well.

U.S. real estate and REIT M&A announcements, defined as deals yet to close, picked up in the first quarter after December’s market rout. The activity was driven by a wide gap between publicly traded and privately-owned real estate valuations. During the quarter, Belmond Hotels, MedEquities Realty Trust, and TIER REIT all announced combinations with other publicly traded buyers.

Cross-border activity was more meaningful in the final quarter of 2018. Fourth quarter volume was up 11% year-over-year, representing 17% of total transaction volume. While 2018 cross-border volume as a whole was up 13%, it represented a lower percentage of total volume (14%). Canadian investment solidly led activity with $47 billion closed – a 132% increase year-over-year. Chinese investment shrank 5% year-over-year to $6.4 billion, as buyers continued to throttle back activity.

With the Federal Reserve indicating they’re in a holding pattern, interest rates are likely to remain low and range bound. This should result in marginally increased confidence, removing a potential headwind for the sector and driving a sequential boost to transaction volume. It will also likely propel refinancing activity in the coming quarters.

Fundamentals remain stable across most property types, but new supply is roughly at long-term levels, and there continues to be pockets of overbuilding. Rent growth continues to moderate and occupancy levels have likely nearly peaked.

On the valuation front, the Green Street Commercial Property Price Index was unchanged year-to-date, after increasing 2% during 2018. Manufactured housing and industrial continue to lead the sector higher, with both rising 2% through March, and 16% and 9%, respectively, over the trailing twelve months. In a break from the declining values over the past few years, retail values managed to hold steady this quarter. Green Street Advisor’s model, which tracks the relative value relationship between real estate and fixed income (investment grade and high yield), pegs real estate, in aggregate, as appropriately priced versus yields in the bond market. Fair value, however, varies significantly across sectors. The narrowing of the valuation gap since December was a result of the sharp move tighter in credit. Listed real estate equities similarly narrowed the discount to NAV – to just -1% – after ending 2018 near some of the widest discounts this cycle. Year-to-date capital flows into U.S. registered real estate mutual funds and ETFs improved relative to 2018, which was when public markets suffered their worst-ever year of outflows (-$20.8 billion). However, in a continuing transition of capital from active to passive management, there have been approximately $956 million of outflows from U.S. mutual funds, as approximately $2.7 billion flowed into U.S. REIT ETFs.

EuropeThe U.K. economy continues to weather political chaos, despite the deadline for a Brexit deal being delayed further into 2019. After GDP expanded 0.5% month-over-month in January 2019, monthly GDP increased by 0.2% in February. This movement contributed to a rise in the annual growth rate from 1.5% to 2.0%, its highest since November 2017, as reported by Capital Economics. Brexit uncertainty was high in March and estimates for GDP suggest a drop; however, even if GDP falls 0.5% month-over-month in March, the U.K.’s economy would grow by 0.3% quarter-over-quarter. Considering the circumstances, this seemingly feeble expansion is solid. The annual unemployment rate is expected to remain stable at 3.9%, the lowest since 1975. This data may suggest Brexit is of little consequence to the U.K. economy; however, the low unemployment rate and low levels of corporate capex spending indicate companies may be hesitant to make long term commitments and are instead expanding output by hiring more workers, which are relatively easy to remove if demand falls.

Unlike the U.K., the Continental European economies appear to be stalling despite tremendous stimulus efforts. Industrial production was down year-over-year in January across all four major economies. Even improvements in France and Spain could not offset further deterioration in Germany and Italy. Germany’s manufacturing sector has fallen into a notably deep recession – its new orders dropped 8.2% year-over-year in February, with significant contraction in overseas demand. Although Italy’s unemployment rate rose, the eurozone’s unemployment rate remained constant at 7.8%, largely due to decreased unemployment in France and Spain. This sluggish economic growth – even after its massive quantitative easing program – has the ECB hinting at further stimulus injections.

Wilson LeungPortfolio ManagerHead of Asia Real Estate

Steven ChaCo-Portfolio Manager



Europe (continued)

Returning to the U.K., real estate fundamentals remain strong early in the year. Commercial office property investments in the City of London and the West End appear to defy Brexit uncertainty, reaching £3.2 billion in the first quarter of 2019, representing a 28% increase from the same quarter last year. U.S. buyers have driven demand this year, purchasing 45% of the total value, according to Savills. Domestic buyers have also shown strong interest, purchasing 23 properties for a total of £907, according to PropEU. According to Knight Frank, Central London office leasing was down 21% year-over-year, though this drop may have been due to a lack of vacancy, as evidenced by pre-leases representing a large portion (24%) of the leasing total.

Like its economy, Continental Europe’s real estate fundamentals vary significantly by country. While office take-up in the region appears decent, with a 7% year-over-year increase, this boost was driven by extraordinary performance in Brussels and Stockholm – both of which experienced growth in excess of 150% year-over-year. Excluding these cities, European office take-up was down 2% year-over-year. Much of the reduced take-up is a result of limited supply, not decreased demand, as evidenced by prime rents, which were up 5.1% year-over-year and up 0.6% in the first quarter of 2019 across Europe.

JapanFollowing a third quarter 2018 decline due to a series of natural disasters, Japan’s economy saw a return to growth in the fourth quarter that was primarily driven by strong household consumption and corporate investment. Japan’s labor market continued to be tight, with the unemployment rate remaining at a historical low of approximately 2.4% as of year-end 2018. Retaining workers continues to be a key consideration for companies – placing upward pressure on wage growth. While the domestic economy demonstrated sound fundamentals, concerns about weakening export demand stemming from the U.S.-China trade war and Brexit have weighed on business sentiment and on the Bank of Japan, which is expected to maintain its monetary easing policy into 2019. On the political front, Prime Minister Abe’s reelection to a third term as the Liberal Democratic Party leader this September points to political stability until the expiration of his term in September 2021. Looking forward, the proposed consumption tax increase – which is expected to rise from 8% to 10% in October 2019 – may have a meaningful impact on domestic consumption in the coming year.

Real estate fundamentals in the office sector across Japan’s main cities remains strong. All-grade office vacancy ended the year at 1% in Tokyo and Osaka and is also at historical lows in other regional cities. New office supply in Osaka is expected to be limited, thus potentially putting upward pressure on rents, while in Tokyo, a large volume of new supply expected in 2019/2020 has already been pre-leased, possibly leading to similar upward rent pressure.

The logistics market continues to expand with a rising number of new entrants, including many developers and institutional investors. Since last year, three new logistics-focused J-REITs have listed and liquidity in the sector continues to improve. The rush to development has left some submarkets with a temporary spike in concentrated new supply, presenting potential opportunities to acquire these underperforming assets that require lease-up and better management.

Despite the natural disasters that hit in the third quarter, the number of inbound tourists increased to 31.2 million in 2018, up nearly 9% from the previous year and rising for the seventh straight year. The growth in tourism has benefited prime retail and hospitality sectors in the main cities of Tokyo, Osaka, and Kyoto. The government has set a target of 40 million visitors in 2020, when Japan will host the Summer Olympics.

Overall real estate transaction volume in Japan was down 27% in 2018, however, the decline is primarily due to a lack of product rather than limited investor demand. Investor interest both onshore and offshore remains strong, with a particular focus on core, yield-generating properties. Domestic Japanese banks continue to demonstrate a strong lending appetite for the real estate sector, with no sign of capital markets softening in the short-term.

ChinaOverall, China’s economic growth in 2018 topped expectations at 6.6%, exceeding the 6.5% target set at the beginning of the year. However, several factors – including trade tensions, U.S. rate hikes, and the recent downturn of the U.S. equity markets – continued to weigh on investor sentiment. The Shanghai Stock Exchange Composite Index finished the year down 25%, the lowest level in four years, while Hong Kong’s Hang Seng Index finished the year down 14%. The Chinese RMB depreciated another 6% year-over-year to 6.88 RMB per USD by year-end.

On the real estate front, office fundamentals in large Chinese cities continue to be positive, underpinned by rapid growth in the services sector. Demand for office space in tier one cities remained strong, while vacancy rates stayed at healthy levels. In Shanghai, Grade-A office rents were up moderately, and office demand continues to be strong despite vacancy increasing to 12% due to a 10% supply hike in 2018. In Beijing, the office sector continued to be a landlord’s market with a tight vacancy of 4.9% and rents up 5%.


China (continued)

Investment demand for prime commercial properties in tier one cities, such as Shanghai and Beijing, remained strong. On the other hand, debt-laden companies – including several of the large developers and conglomerates – accelerated sales of their real estate portfolios to repay maturing loan obligations. We believe that these event-driven special situations may present attractive buying opportunities for investors in 2019.

Hong KongHong Kong’s economy delivered solid growth of 3% in real terms in 2018, which is higher than the growth trend of 2.8% over the past ten years. Unemployment remained at a 20-year low of 2.8%. The U.S.-China trade war, U.S. interest rate hikes, and the introduction of a vacancy tax on newly built residential properties has led to negative sentiment in the property investment market, as buyers increasingly take a wait-and-see attitude. Residential transaction volume dropped by over 50% in the final few months of 2018, and average prices declined by approximately 7% in the second half of the year. Nonetheless, overall residential prices still finished the year up 5.4% according to Centaline, Hong Kong’s leading residential brokerage.

Scarcity of available land in Hong Kong and a long-term supply shortage continues to underpin real estate fundamentals. As of December 2018, office vacancy remained tight at 1.7% in Central, Hong Kong (CBD) and 4.1% in Hong Kong overall. Strong office fundamentals have lifted office rents by approximately 7% in Central and by 6% across Hong Kong in 2018. As a result, the rental gap between Central and decentralized office areas continues to increase. This office decentralization trend should continue as cost-conscious tenants are pushed out of Central and are forced to move to less expensive decentralized areas.

South KoreaThe South Korean economy grew 2.7% in 2018, on the back of stable growth in consumption and exports. However, headwinds in the global economy may impact the Korean economy in 2019 and, as a result, we may see lower growth. The International Monetary Fund forecasts GDP growth to be 2.6% in 2019. The Bank of Korea (“BoK”) kept its benchmark policy rate unchanged at 1.75% in February 2019. This is in line with most economists’ expectations that the BoK will maintain rates at 1.75% throughout 2019 due to low inflationary pressures, moderated growth prospects, and household debt burden. The spread between prime office cap rates and Korean government bond yields (i.e. 5-year treasury bond) widened 18 basis points from the previous quarter to 270 basis points, which is above the 10-year average of approximately 220 basis points. In light of the wide spread, the 25 basis point rise in the benchmark policy rate in November 2018 may not have a dramatic impact on real estate capital values. Investment activity in the commercial office sector remains robust, as evidenced by the record commercial office transaction volume in Seoul. In 2018, commercial office transactions amounted to an unprecedented $10 billion, surpassing the previous year’s record high of $8 billion. We continue to expect strong demand for stabilized core properties as Korean institutions ramp up their investment portfolios with yield-generating real assets. With no new prime office supply, the prime office vacancy rate in the major business districts in Seoul declined moderately to 12.8% in the fourth quarter of 2018 – down 0.3 percentage points from the previous quarter. The residential market in Seoul continues to be robust, with Seoul apartment prices rising 9.5% year-over-year as of March 2019. In Gangnam, the prime residential district in Seoul, apartment prices have increased 6.2% year-over-year as of March 2019. However, the current government is implementing new residential policies – including taxes to curb speculative investment in the residential sector – that may impact future price growth.



PRIVATE EQUITY The private equity industry had a solid start to 2019. First quarter 2019 deal volume, both on a global and North American basis, increased from the first quarter of 2018. In North America, there were $67 billion of transactions in the first quarter of 2019 as compared to $50 billion in the first quarter of 2018 – a year-over-year increase of 34%. Global deal volume in the first quarter of 2019 increased 13% year-over-year to $102 billion. Dry powder set another all-time high, reaching $736 billion at March 31, 2019, a 6% increase from year-end. Average multiples paid in the first quarter of 2019 were 10.3x EBITDA, slightly lower than the 10.6x achieved in calendar 2018. Average leverage for buyouts in the first quarter of 2019 was 5.8x multiple of EBITDA, which is consistent with 2018. Equity contribution as a percentage of total capitalization was at 42% in the first quarter, which is similar to prior years. As previously stated, trends in multiples paid develop over several quarters, so one cannot infer much – if anything – from the slight decrease experienced in the first quarter. However, the continued increase in dry powder provides a structural floor in multiples paid over the long term, as these funds need to be deployed over the next several years. In the first quarter of 2019, the number of exits increased approximately 3% year-over-year, while dollar volume decreased approximately 30%, reflecting smaller monetizations. Barring exogenous factors, we expect the private equity market – in terms of deal volume, dollar volume of exits, and multiples paid – to remain strong in 2019.

Arthur PeponisPortfolio Manager


NET LEASE REAL ESTATEAs of the first quarter of 2019, the trailing 12-month U.S. single-tenant transaction volume totaled $66 billion, according to Real Capital Analytics (RCA). Quarter-over-quarter, volumes declined by 3% due to lower industrial and retail transactions, however, year-over-year, total volumes remained at elevated levels that are up 15%. Since the first quarter of 2018, office volumes are up 21%, industrial volumes are up 28%, and retail volumes are down 12%. Amazon—and e-commerce generally —continues to be one of the primary demand drivers for industrial. In 2012, Amazon occupied 149 sites totaling 62 million square feet. By 2022, CoStar projects that Amazon (including Whole Foods) will occupy 500 sites totaling 280 million square feet, or a 16% CAGR. In 2016, 2017, and 2018, there was approximately 225 million square feet of industrial absorption per year, with e-commerce representing nearly 45% of this absorption, according to CoStar. Overall cap rates have continued to compress, with industrial cap rates rising after finding a temporary floor in the second quarter of 2018, office cap rates steadily declining since 2010, and retail cap rates remaining fairly stable for the last three years.

Gordon J. WhitingPortfolio Manager



Housing (4) Economic and Market Confidence (8)

Existing Home Sales

New Home Sales

Housing Starts

Case-Shiller Index of Home Value in 20 Cities

Capacity Utilization as a % of Capacity

Private Fixed Investment Nonresidential SAAR

Residential Fixed Investment as a % of GDP

ISM Manufacturing Index

Manufacturing Inventory Change Q-o-Q $

Exports of Goods/Services

Shipping Rates

Personal Income Level

Michigan Consumer Confidence Sentiment

$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019Th

ousa

nds

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l

US -- Unemployment Rate

US – Non-Farm Payroll

US – Labor Participation Rate

US -- U-6 Unemployed & Margin & Part-Time as % of Labor Force & Margin

Eurozone Unemployment Rate

3%

8%

2014 2015 2016 2017 2018 2019

Job Market (5) Inflation (3) GDP Growth (3)

US Consumer Price Index (CPI)

US CPI Goods Less Food and Energy

US Producer Price Index (PPI) Y-o-Y %

US – GDP Y-o-Y %

Eurozone – GDP Y-o-Y %

China – GDP Y-o-Y %

0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019Th

ousa

nds

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015






3%

8%

2014 2015 2016 2017 2018 2019





US – GDP Y-o-Y %



0

350

2014 2015 2016 2017 2018 2019

Thou

sand

s

62%

64%

2014 2015 2016 2017 2018 2019

7%

12%

2014 2015 2016 2017 2018 2019

7%

12%

20182017201620152014

(0.2%)

3.0%

2014 2015 2016 2017 2018 2019

1.0%

2.5%

2014 2015 2016 2017 2018 2019

1.0%

2.6%

2014 2015 2016 2017 2018 2019

0.0%

3.0%

20182017201620152014

6.0%

7.5%

20192018201720162015

2.0%

6.0%

20192018201720162015

ECONOMIC DASHBOARDMarket Indices: Second Quarter 2019

Source: Bloomberg (All).

“Latest Direction” is from the last “Frequency” measurement.

JOB MARKETMacro Economics Five-Year Trend

US – Unemployment Rate As of 3/31/2019

Latest Level 3.8

Change from Prior Month 0.0

Latest Direction No Change

Frequency Monthly

US – Non-Farm Payroll As of 3/31/2019

Latest Level 196.0


Latest Direction Improving

Frequency Monthly

US – Labor Participation Rate As of 3/31/2019

Latest Level 63.0

Change from Prior Month (0.2)

Latest Direction Deteriorating

Frequency Monthly

US – U-6 Unemployed & Margin & Part-Time as % of Labor Force & Margin

As of 3/31/2019

Latest Level 7.3



Frequency Monthly

Eurozone Unemployment Rate As of 12/31/2018

Latest Level 7.9



Frequency Quarterly

INFLATIONMacro Economics Five-Year Trend

US Consumer Price Index (CPI) Y-o-Y % As of 3/31/2019

Latest Level 1.9


Latest Direction Increasing

Frequency Monthly

US CPI Goods Less Food and Energy Y-o-Y % As of 3/31/2019

Latest Level 2.0


Latest Direction Decreasing

Frequency Monthly

US Producer Price Index (PPI) Y-o-Y % As of 3/31/2019

Latest Level 2.6



Frequency Monthly

GDP GROWTHMacro Economics Five-Year Trend

US – GDP Y-o-Y % As of 3/31/2019

Latest Level 5.1

Change from Prior Quarter (0.1)


Frequency Quarterly

Eurozone – GDP Y-o-Y % As of 12/31/2018

Latest Level 1.2



Frequency Quarterly

China – GDP Y-o-Y % As of 3/31/2019

Latest Level 6.4

Change from Prior Quarter 0.0


Frequency Quarterly

HOUSINGMacro Economics Five-Year Trend

Existing Home Sales As of 3/31/2019

Latest Level 5.2



Frequency Monthly

New Home Sales As of 3/31/2019

Latest Level 692.0



Frequency Monthly

Housing Starts As of 3/31/2019

Latest Level 1,139.0



Frequency Monthly

Case-Shiller Index of Home Value in 20 Cities As of 1/31/2019

Latest Level 214.6



Frequency Monthly


Commodities (3) Rates (4) Equity (9)

WTI Crude Oil Price

Reuters/Jefferies Commodity Index

Gold

LIBOR 3M

Treasury 10 Yr Yield

Swaps 2Y vs 10Y

30 Yr Mortgage and 10 Yr Treasury

US Equity Markets – Russell 3000

US Equity – VIX

S&P 500 Percentage Exceeding Earning Estimates

S&P 500 Historical Valuation Levels

Trailing P/E on S&P 500

$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%

May '14 May '15 Apr '16 Apr '17 Mar '18 Mar '19

30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)

Enterprise Value / Trailing12m EBITDA (RHS)

150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l70

103

2014 2015 2016 2017 2018 2019Le

vel


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015

$ Billi

ons

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l


Existing Home Sales

New Home Sales

Housing Starts








Shipping Rates



$2,250

$2,600

20192018201720162015

$ Billi

ons

$13,000

$18,000

2014 2015 2016 2017 2018 2019

$ Billi

ons

4.0

6.0

2014 2015 2016 2017 2018 2019

Millio

ns

325

725

2014 2015 2016 2017 2018 2019

Thou

sand

s

400

1,350

2014 2015 2016 2017 2018 2019

Thou

sand

s

150

215

2014 2015 2016 2017 2018 2019

Leve

l

75%

80%

2014 2015 2016 2017 2018 2019

$2,000

$3,000

20192018201720162015$ B

illion

s

2.8%

3.5%

20192018201720162015

46

62

2014 2015 2016 2017 2018 2019

Leve

l

($20)

$50

20192018201720162015

$ Billi

ons

300

2,300

2014 2015 2016 2017 2018 2019

Leve

l

70

103

2014 2015 2016 2017 2018 2019

Leve

l

ECONOMIC DASHBOARD (continued)

ECONOMIC & MARKET CONFIDENCEMacro Economics Five-Year Trend

Capacity Utilization as a % of Capacity As of 3/31/2019

Latest Level 78.8



Frequency Monthly

Private Fixed Investment Nonresidential SAAR As of 3/31/2019




Frequency Quarterly

Residential Fixed Investment as a % of GDP As of 3/31/2019

Latest Level 3.2



Frequency Quarterly

ISM Manufacturing Index As of 3/31/2019

Latest Level 55.3



Frequency Monthly

Manufacturing Inventory Change Q-o-Q $ As of 3/31/2019

Latest Level 31.1



Frequency Quarterly

Exports of Goods/Services As of 3/31/2019

Latest Level 2,577

Change from Prior Month 23


Frequency Quarterly

Shipping Rates As of 3/29/2019

Latest Level 689



Frequency Quarterly

Personal Income Level As of 2/28/2019

Latest Level 18,042



Frequency Monthly

Michigan Consumer Confidence Sentiment As of 3/31/2019

Latest Level 98.4



Frequency Monthly

COMMODITIESMacro Economics Five-Year Trend

WTI Crude Oil Price As of 3/29/2019

Latest Level 60.1



Frequency Monthly

Reuters/Jefferies Commodity Index As of 3/29/2019

Latest Level 183.8



Frequency Monthly

Gold As of 3/29/2019




Frequency Monthly

RATESMacro Economics Five-Year Trend

LIBOR 3M As of 3/29/2019

Latest Level 2.60



Frequency Monthly

Treasury 10 Yr Yield As of 3/29/2019

Latest Level 2.41



Frequency Monthly

Swaps 2Y vs. 10Y As of 3/29/2019

Latest Level 2.61


Latest Direction Flattening

Frequency Monthly

30 Yr Mortgage and 10 Yr Treasury As of 3/29/2019




Equity (9) Foreign Exchange Rate (3)

Equity Markets – Euro Stoxx

Equity Markets – MSCI EAFE

Equity Markets – MSCI EM

Russell 3000 – MSCI EAFE – MSCI EM

Euro Spot Rate vs. 1 USD

Yuan Spot Rate vs. 1 USD

Yen Spot Rate vs. 1 USD

300

400

2014 2015 2016 2017 2018 2019

Leve

l

$1.0

$1.4

2014 2015 2016 2017 2018 2019

Price

40.00

180.00

2014 2015 2016 2017 2018 2019

Norm

alize

d at

100

Begin

ning

3/31/1

4

RAY IndexMXEA IndexMXEF Index

700

1,300

2014 2015 2016 2017 2018 2019

Leve

l

1,500

2,200

2014 2015 2016 2017 2018 2019

Leve

l

$0.14

$0.17

2014 2015 2016 2017 2018 2019

Price

0.008

0.011

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018Le

vel

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l

10

30

2014 2015 2016 2017 2018 2019

Leve

l

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l


WTI Crude Oil Price


Gold

LIBOR 3M


Swaps 2Y vs 10Y



US Equity – VIX




$20

$110

2014 2015 2016 2017 2018 2019

Price

0%

3%

2014 2015 2016 2017 2018 2019

1.0%

3.5%

2014 2015 2016 2017 2018 2019

0

200

2014 2015 2016 2017 2018 2019

bps

1,000

1,800

2014 2015 2016 2017 2018

Leve

l10

30

2014 2015 2016 2017 2018 2019Le

vel

1%

4%


30-Year Mortgage

10-Year Treasury

14x

23x

2014 2015 2016 2017 2018 2019

Leve

l

7

16

11

25

2014 2015 2016 2017 2018 2019

S&P 500 P/E (LHS)


150

250

2014 2015 2016 2017 2018 2019

Leve

l

$1,000

$1,400

2014 2015 2016 2017 2018 2019

Price

64%

84%

2014 2015 2016 2017 2018 2019

Leve

l









300

400

2014 2015 2016 2017 2018 2019

Leve

l

$1.0

$1.4

2014 2015 2016 2017 2018 2019

Price

40.00

180.00

2014 2015 2016 2017 2018 2019

Norm

alize

d at

100

Begin

ning

3/31/1

4


700

1,300

2014 2015 2016 2017 2018 2019

Leve

l

1,500

2,200

2014 2015 2016 2017 2018 2019

Leve

l

$0.14

$0.17

2014 2015 2016 2017 2018 2019

Price

0.008

0.011

2014 2015 2016 2017 2018 2019

Leve

l









300

400

2014 2015 2016 2017 2018 2019

Leve

l

$1.0

$1.4

2014 2015 2016 2017 2018 2019

Price

40.00

180.00

2014 2015 2016 2017 2018 2019

Norm

alize

d at

100

Begin

ning

3/31/1

4


700

1,300

2014 2015 2016 2017 2018 2019

Leve

l

1,500

2,200

2014 2015 2016 2017 2018 2019

Leve

l

$0.14

$0.17

2014 2015 2016 2017 2018 2019

Price

0.008

0.011

2014 2015 2016 2017 2018 2019

Leve

l









300

400

2014 2015 2016 2017 2018 2019

Leve

l

$1.0

$1.4

2014 2015 2016 2017 2018 2019

Price

40.00

180.00

2014 2015 2016 2017 2018 2019

Norm

alize

d at

100

Begin

ning

3/31/1

4


700

1,300

2014 2015 2016 2017 2018 2019

Leve

l

1,500

2,200

2014 2015 2016 2017 2018 2019

Leve

l

$0.14

$0.17

2014 2015 2016 2017 2018 2019

Price

0.008

0.011

2014 2015 2016 2017 2018 2019

Leve

l









300

400

2014 2015 2016 2017 2018 2019

Leve

l

$1.0

$1.4

2014 2015 2016 2017 2018 2019

Price

40.00

180.00

2014 2015 2016 2017 2018 2019

Norm

alize

d at

100

Begin

ning

3/31/1

4


700

1,300

2014 2015 2016 2017 2018 2019

Leve

l

1,500

2,200

2014 2015 2016 2017 2018 2019

Leve

l

$0.14

$0.17

2014 2015 2016 2017 2018 2019

Price

0.008

0.011

2014 2015 2016 2017 2018 2019

Leve

l









300

400

2014 2015 2016 2017 2018 2019

Leve

l

$1.0

$1.4

2014 2015 2016 2017 2018 2019

Price

40.00

180.00

2014 2015 2016 2017 2018 2019

Norm

alize

d at

100

Begin

ning

3/31/1

4


700

1,300

2014 2015 2016 2017 2018 2019

Leve

l1,500

2,200

2014 2015 2016 2017 2018 2019

Leve

l

$0.14

$0.17

2014 2015 2016 2017 2018 2019

Price

0.008

0.011

2014 2015 2016 2017 2018 2019

Leve

l









300

400

2014 2015 2016 2017 2018 2019

Leve

l

$1.0

$1.4

2014 2015 2016 2017 2018 2019

Price

40.00

180.00

2014 2015 2016 2017 2018 2019

Norm

alize

d at

100

Begin

ning

3/31/1

4


700

1,300

2014 2015 2016 2017 2018 2019

Leve

l

1,500

2,200

2014 2015 2016 2017 2018 2019Le

vel

$0.14

$0.17

2014 2015 2016 2017 2018 2019

Price

0.008

0.011

2014 2015 2016 2017 2018 2019

Leve

l



ECONOMIC DASHBOARD (continued)

EQUITYMacro Economics Five-Year Trend

US Equity Markets – Russell 3000 As of 3/29/2019



Latest Direction Rally

Frequency Monthly

US Equity – VIX As of 3/29/2019

Latest Level 13.7



Frequency Monthly

S&P 500 Percentage Exceeding Earning Estimates As of 3/29/2019

Latest Level 67.7



Frequency Monthly

S&P 500 Historical Valuation Levels As of 3/29/2019

Trailing P/E on S&P 500 As of 3/29/2019

Latest Level 18.6



Frequency Monthly

Equity Markets – Euro Stoxx As of 3/29/2019

Latest Level 366.9



Frequency Monthly

Equity Markets – MSCI EAFE As of 3/29/2019




Frequency Monthly

Equity Markets – MSCI EM As of 3/29/2019




Frequency Monthly

Russell 3000 – MSCI EAFE – MSCI EM As of 3/29/2019

FOREIGN EXCHANGE RATEMacro Economics Five-Year Trend

Euro Spot Rate vs. 1 USD As of 3/29/2019

Latest Level 1.12



Frequency Monthly

Yuan Spot Rate vs. 1 USD As of 3/29/2019

Latest Level 0.1490



Frequency Monthly

Yen Spot Rate vs. 1 USD As of 3/29/2019

Latest Level 0.0090



Frequency Monthly



Negative yielding global debt has increased by more than 20% since Q1 2018, nearing its post-crisis peak.

$10.4

$5

$6

$7

$8

$9

$10

$11

Mar '18 Apr '18 May '18 Jun '18 Jul '18 Aug '18 Sep '18 Oct '18 Nov '18 Dec '18 Jan '19 Feb '19 Mar '19

Source: Bloomberg, Deutsche Bank.

NEGATIVE YIELDING DEBT

($ Trillions)

CHART OF THE QUARTER



INVESTMENT STRATEGIES

PERFORMING CREDIT

Although down from its recent peak at the end of last year, the yield-to-maturity of the leveraged loan index is over 6.5%, well above its three year average.

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

Mar '15 Sep '15 Mar '16 Sep '16 Mar '17 Sep '17 Mar '18 Sep '18 Mar '19

1422Approved

LEVERAGED LOAN INDEX YTM

Source: J.P. Morgan, Bloomberg.

Leveraged loan prices increased sharply to start the year, recouping much of December’s sell-off in the early days of the quarter.

$94

$95

$96

$97

$98

$99

$100

Dec '17 Mar '18 May '18 Jul '18 Sep '18 Nov '18 Jan '19 Mar '19

LEVERAGED LOAN INDEX

1421Approved

Source: J.P. Morgan.


PERFORMING CREDIT (continued)

Value and outsized gains can be found in smaller tranches that may be overlooked by managers focused on tranche size over credit quality.

14.68%

11.95%

10.10%

8.79%8.14%

8.52%

7.80%

7.08%

6.62%

6.24%

5.72%5.58%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

6%

8%

10%

12%

14%

16%

Less Than $300Mn $300Mn To $499Mn $500Mn To $749Mn $750Mn To $999Mn $1Bn To $1.999Bn $2Bn And Greater

Yield to 3-Year TakeoutTo

tal R

etur

n Si

nce B

egin

ning

201

7

SMALL VS. LARGE LOAN PERFORMANCE

1424Approved


Net issuance declined sharply in Q1, providing technical support to the market.

$0

$50

$100

$150

$200

$250

$300

$350

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD

INSTITUTIONAL LOAN NEW ISSUANCE

1423Approved

Note: Excludes Refinancing and Re-Pricing volume.Source: J.P. Morgan.


MIDDLE MARKET DIRECT LENDING

Middle market loans continue to offer an attractive premium versus large corporate loans.

L+200

L+250

L+300

L+350

L+400

L+450

L+500

L+550

L+600

L+650

L+700

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Middle Market Leveraged LoanLarge Corporates Leveraged Loan

AVERAGE LOAN SPREAD: MIDDLE MARKET VS. LARGE CORPORATES

Average Difference in Spread 2003 to 2007 54 bps 2010 to 2016 155 bps Currently 129 bps

129 bps

600

Middle market leveraged loan includes issuers with less than $50m EBITDA. Average spread includes any LIBOR floor benefit.Source: S&P Capital IQ LCD.

Approved

Upcoming middle market loan maturities should create demand for new issuance and refinancing.

605Approved

$0

$5

$10

$15

$20

$25

$30

$35

$40

1Q19 3Q19 1Q20 3Q20 1Q21 3Q21 1Q22 3Q22 1Q23 3Q23 1Q24 3Q24 1Q25 3Q25

SponsoredNon-Sponsored

MIDDLE MARKET LOAN MATURITIES

($ Billions)

Source: Refinitiv, LPC.


ENERGY

Over the last three years, energy equities have significantly underperformed the broader market.

Energy equity valuations remain low.

$40

$60

$80

$100

$120

$140

$160

$180

2016 2017 2018 2019

E&P OFSTech IndustrialsHealthcare S&P 500

ENERGY EQUITIES: RELATIVE PERFORMANCE

1353Approved

Source: S&P Capital IQ.

11.3x

5.7x 5.7x

0x

2x

4x

6x

8x

10x

12x

14x

16x

18x

20x

FY+1

EV / E

BITD

A

ENERGY EQUITIES: RELATIVE VALUATION

1354Approved

Source: NYU Stern School of Business, Seaport Global Securities.

From 2010 through mid-2014, crude enjoyed over four years of relative stability. Since, volatility has increased meaningfully, chasing capital out of the sector.

0

10

20

30

40

50

60

70

80

90

100

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

WTI: 30-DAY VOLATILITY

1357Ready for Review

Source: Bloomberg.

Pre-Modern Era Modern Era


ENERGY (continued)

Energy equities have reached a historic level of unimportance.

4%

6%

8%

10%

12%

14%

16%

18%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

ENERGY EQUITIES: WEIGHTING AS A PERCENT OF THE S&P 500

1355Approved

Source: Bloomberg.

As traditional buyers have now become sellers, acquisition and divestiture activity has stalled, declining by 91% since Q4 2016.

0

50

100

150

200

250

300

350

400

450

1Q '15 3Q '15 1Q '16 3Q '16 1Q '17 3Q '17 1Q '18 3Q '18 1Q '19

# of A

nnou

nced

Tra

nsac

tions

PACE OF ACQUISITIONS AND DIVESTITURES ACTIVITY SLOWING CONSIDERABLY

1356Approved

Source: BMO Capital Markets.

-91%


High yield is off to its strongest start on record, though lower quality is underperforming.

As expectations of rate increases have waned, investors have shifted from loans into high yield.

6016Approved

3.89%3.47%

4.91%

7.27% 7.30% 7.39%6.80%

0%

1%

2%

3%

4%

5%

6%

7%

8%

CORPORATE CREDIT PERFORMANCE

Source: J.P. Morgan, as of March 31, 2019.

($45)

($35)

($25)

($15)

($5)

$5

$15

$25

2011 2012 2013 2014 2015 2016 2017 2018 2019

HY Mutual Fund Flows

Leveraged Loan Mutual Fund Flows

6015Approved

HIGH YIELD AND LEVERAGED LOAN FUND FLOWS


($ Billions)

DISTRESSED DEBT

BBB now represents 50% of the Investment Grade Index.

6017Approved

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 20190%

10%

20%

30%

40%

50%

60%

AAA AA A BBB

Source: FTSE Fixed Income LLC.

QUALITY BREAKDOWN OF THE INVESTMENT GRADE INDEX


DISTRESSED DEBT (continued)

Loan issuance again declined year-over-year, though the proportion of covenant-lite remains significant.

6019/6020Approved

0%

20%

40%

60%

80%

100%

'01 '03 '05 '07 '09 '11 '13 '15 '17 '19$0

$100

$200

$300

$400

$500

$600

U.S. Issuance (LHS) U.S. Cov-Lite (RHS)

Source: Deutsche Bank.

COVENANT-LITE ISSUANCE

(U.S. Leveraged Loan Cov-Lite Issuance, in $ Billions)

0%

20%

40%

60%

80%

100%

'01 '03 '05 '07 '09 '11 '13 '15 '17 '19€ 0

€ 20

€ 40

€ 60

€ 80

€ 100

€ 120

Europe Issuance (LHS) Europe Cov-Lite (RHS)

(Europe Leveraged Loan Cov-Lite Issuance, in € Billions)

Lower-rated loans continue to dominate new issuance.

6018Approved

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20190%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

NR

B+/B/B- or CCC

Split BB/B

BB+/BB/BB-

Split BBB/BB or higher

Source: Morgan Stanley Research, S&P LCD.

LEVERAGED LOAN ISSUANCE BY RATING


MERGER & CONVERTIBLE ARBITRAGE

The return of large-cap deals helped M&A volumes remain strong despite a decline in deals announced.

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019$0

$100

$200

$300

$400

$500

$600Quarterly M&A Volume (LHS) S&P 500 (RHS) Conference Board Consumer Confidence (RHS)

QUARTERLY NORTH AMERICA M&A VOLUME VS S&P 500 AND CONSUMER CONFIDENCE

Normalized at 100 - March 2007

59Approved

Source: Bloomberg.

($ Billions)

2019 global new issuance is off to a solid start. Global convertible market cap has risen above $300 billion.

83

101

167

96

159

98

63

112

163

9385

76

4755

93 8981 77 75

85

22

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

JapanAsiaEuropeUS

ANNUAL CONVERTIBLE ISSUANCE BY REGION($ Billions)

515Approved

Source: Bank of America Merrill Lynch.

$0

$100

$200

$300

$400

$500

$600

'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

JapanAsiaEuropeUS

MARKET SIZE BY REGION

519Approved


($ Billions)


RESIDENTIAL AND CONSUMER DEBT (RMBS/ABS)

The tight labor market continues to support the health of the U.S. consumer.

0

2

4

6

8

10

12

14

16

18

Dec '00 Aug '02 Apr '04 Dec '05 Jul '07 Mar '09 Nov '10 Jul '12 Feb '14 Oct '15 Jun '17 Jan '19

Job OpeningsUnemployed Persons

(Thousands)

JOB OPENINGS GREATER THAN UNEMPLOYMENT

3025Approved

Source: Bureau of Labor Statistics, Bloomberg.

Spreads for CRT, a product often benchmarked to high yield corporates, retraced Q4’s widening to start the quarter and continued to tighten during the balance of the quarter.

100

200

300

400

500

600

700

Jan '17 Mar '17 Jun '17 Aug '17 Oct '17 Jan '18 Mar '18 May '18 Aug '18 Oct '18 Dec '18 Mar '19

CRT MezzanineCRT SubordinateHY BB CorpHY B Corp

CRT SPREADS

3026Approved


(Bps)


RESIDENTIAL AND CONSUMER DEBT (RMBS/ABS) (continued)

Household debt-to-income is close to historic lows.

9.9%

8%

9%

10%

11%

12%

13%

14%

Dec-82 Dec-85 Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15 Dec-18

Total DTICurrent

DEBT TO INCOME RATIO

3027Approved

Source: Federal Reserve, Morgan Stanley Research.

ABS tranches have experienced more upgrades than many corporate credit securities.

1% 1%3%

8% 8%

-1%

12%

22%

25%

-5%

0%

5%

10%

15%

20%

25%

30%

Global CLO US CLO US CMBS US Cards ABS Global StructuredFinance

Global Corporate US SL ABS US RMBS US Auto ABS

Aver

age

Annu

al Ne

t Upg

rade

/ Dow

ngra

de R

ate

ABS NET UPGRADES AND DOWNGRADES

3028Approved

Note: Five year average of 12-month net upgrade and downgrade rate (July 2013 - July 2018).Source: Moody's, Goldman Sachs Global Investment Research.


COMMERCIAL REAL ESTATE DEBT (CMBS)

CMBS market share declined year-over-year as “shadow banks” have amassed dry powder to deploy; this has resulted in increased competition in certain lending segments such as bridge and transitional financing.

2028Approved

16%

19%

14%

19%

28%

25%

23%

10%

7%

8%

9%

9%

7%

5%

24%

26%

23%

20%

19%

17%

26%

11%

10%

11%

12%

10%

12%

14%

7%

6%

7%

7%

8%

10%

7%

14%

13%

17%

16%

13%

17%

14%

17%

17%

19%

15%

12%

11%

9%

1%

1%

1%

1%

1%

2%

1%

0% 20% 40% 60% 80% 100%

2018

2017

2016

2015

2014

2013

2012

CMBS Financials Government Agency Insurance International Bank National Bank Regional/Local Bank Private/Other

COMMERCIAL REAL ESTATE LENDING MARKET SHARE

Source: Real Capital Analytics, Bank of America Merrill Lynch.

Quarterly new issue declined slightly versus Q4 2018, providing further support to positive technicals and fundamentals for CMBS.

$0

$5

$10

$15

$20

$25

$30

$35

Q1 '14 Q1 '15 Q1 '16 Q1 '17 Q1 '18 Q1 '19

OtherFloaterSingle borrowerConduit

QUARTERLY PRIVATE LABEL ISSUANCE

2017Approved

Source: Credit Suisse, Commercial Mortgage Alert.

($ Billions)


COMMERCIAL REAL ESTATE DEBT (CMBS) (continued)

Recent CMBX indices have had less exposure to retail, reflecting less overall retail exposure in recently originated conduit CMBS deals.

40%

36%

27%

25%

31%

22%

25%

27%

18%

26%

24%

30%

31%

31%

5%

12%

14%

15%

7%

8%

10%

11%

12%

14%

17%

14%

15%

14%

5%

6%

8%

6%

7%

11%

6%

12%

16%

11%

13%

11%

13%

14%

0% 20% 40% 60% 80% 100%

6

7

8

9

10

11

12

Retail Office Multifamily Hotel Mixed Use Other

2030Approved

CMBX PROPERTY TYPE

Note: Average collateral attributes, CMBX underlier deals, by series. Office includes Suburban and Single Tenant. Source: Trepp, Goldman Sachs Global Investment Research.

Although upcoming CMBS maturities are modest, an increasing share of new issue conduit loans has come from non-conduit refinancings.

2029Approved

$5

$10

$18

$27

$41

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2019 2020 2021 2022 2023

Amou

nt M

atur

ing

by Y

ear

CONDUIT CMBS MATURITIES

Source: Intex, Bank of America Merrill Lynch.

($ Billions)


REAL ESTATE – UNITED STATES

Price gains continue to level off in core markets, while broader market pricing continues to move modestly upward. Across the major sectors, apartments and industrial have led the way in price growth, while retail continues to lag.

20

40

60

80

100

120

140

160

180

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Moody's/RCA CPPI - Major Markets (all trades over $2.5M)Moody's/RCA CPPI - Non-Major Markets (all trades over $2.5M)Green Street CPPI (proxy for core assets)

COMMERCIAL REAL ESTATE PRICE INDICES

32Approved

Source: Moody’s CPPI = Moody’s/RCA All Property Types.Green Street CPPI = Major Sectors.Sources: Moody’s – Commercial Property Price Index (Moody’s CPPI) (data through Feb ‘19), Green Street Advisors – Commercial Property Price Index (Green St CPPI)(data through Nov ’18). Note: For this chart, Green St CPPI was indexed to 100 at it's 2007 peak (Aug 2007) and Moody’s CPPI was indexed at 100 in Dec 2006.Note: Major markets include Boston, Chicago, Washington D.C. Metro, Los Angeles Metro, New York City Metro and San Francisco Metro.

(Index)

Unlevered real estate has historically offered a return between investment grade and high yield bonds. Given the recent tightening in spreads, real estate appears fairly priced.

0%

2%

4%

6%

8%

10%

12%

14%

2001 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012 2013 2014 2015 2016 2017 2018

Real Estate IRRs

Baa Corporates

High Yield Bond

22%

406Approved

Real Estate IRRs is an equal-weighted average of the asset-weighted averages for the five major property sectors (apartment, industrial, mall, office, and strip center).Source: Green Street Advisors (Mar ‘19), Moody’s (Baa Corporates), BAML (High-Yield Bonds).

UNLEVERED TOTAL RETURN EXPECTATIONS ON REAL ESTATE VS. CORPORATE BOND YIELDS


83%

85%

87%

89%

91%

93%

(10%)

(6%)

(2%)

2%

6%

10%

'06 '08 '10 '12 '14 '16 '18 '20 '22

Rent Growth (LHS)

Occupancy (RHS)

OCCUPANCY AND RENT GROWTH –MAJOR SECTOR AVERAGE

927Approved

Source: Green Street Advisors.

New supply is at cycle peak but leveling off, and senior, student, and storage have seen the heaviest new supply as a percentage of existing stock.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Apt Ind Mall Office Strip Lodging Man Home Sr Housing Storage Student

95-'09

19-'20

21-'23

SUPPLY BY SECTOR

931Approved

12.0%

Source: Green Street Advisors.Note: Shaded area represents new supply from anchor closures. Strip retail faces similar dynamic. Estimates are not shown because impact has not been quantified.

REAL ESTATE – UNITED STATES (continued)

As supply growth has ramped up, the pace of rent growth has slowed and occupancy has modestly declined.

After a period of sustained discount to NAV, current pricing parity reflects a return to cycle trend growth and a more patient monetary policy.

(50%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

'90 '92 '95 '98 '00 '03 '05 '08 '11 '13 '16 '19

US REITsAverage Premium/Discount to Property NAV

930Approved

Source: Green Street Advisors.

SYNCHRONIZED PUBLIC-PRIVATE PRICING VALIDATION


REAL ESTATE – EUROPE

Surveys such as PMI are suggesting continued economic slowdown.

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 201944.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

60.0

Eurozone GDP (% q/q) (RHS)

Composite Output PMI (LHS)

535

EUROZONE GDP & COMPOSITE PMI

Source: Refinitiv, Markit, Capital Economics.

Approved

Office rents continue to grow, primarily due to limited new supply as opposed to economic expansion.

2005 2006 2007 2008 2010 2011 2012 2013 2015 2016 2017 2018315

335

355

375

395

415

435

536

PRIME EUROPEAN OFFICE RENTAL INDEX

Note: Weighted Nominal Rental Trend, 1980 = 100Source: JLL, April 2019

Approved

(EUR / sq m pa)


REAL ESTATE – EUROPE (continued)

2018 saw a downshift in industrial production across Europe.

Jan '16 May '16 Sep '16 Jan '17 May '17 Sep '17 Jan '18 May '18 Sep '18 Jan '19(5%)

(3%)

(1%)

1%

3%

5%

7%France

Spain

Italy

Germany

538

INDUSTRIAL PRODUCTION

Source: Refinitiv, Capital Economics.

Approved

Y-o-Y

Slower global growth is impacting Germany.

Spain France Germany Italy(0.3%)

(0.2%)

(0.1%)

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

Q1 2018 Q2 2018 Q3 2018 Q4 2018

GDP (% q/q)

537Approved

GDP OF SELECT EUROZONE MEMBERS

Source: Refinitiv, Capital Economics.

0.0%


REAL ESTATE – ASIA

Cap rate spreads continue to be wide at nearly 350 bps.

The J-REIT index continues to perform well.

0

100

200

300

400

500

600

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Spread (RHS)10-year Japanese Government Bond Yield (LHS)Grade A Office Building in Central Tokyo (LHS)

TOKYO GRADE A OFFICE CAP RATES VS. BORROWING COSTS

(Bps)

43Approved

Source: Japan Real Estate Institute.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

50

100

150

200

250

300

'02 '04 '06 '08 '10 '12 '14 '16 '18

Index Value (LHS)

Expected Dividend Yield (RHS)

JAPANESE REAL ESTATE INVESTMENT TRUST (J-REIT) INDEX AND DIVIDEND YIELD Normalized at 100 - September 2001

44Approved

Source: Sumitomo Mitsui Trust Research Institute Co.

GDP growth remains in the 6.0% – 6.5% range. Tokyo office fundamentals continue to be strong with vacancy falling to nearly 0% and rents rising.

6.2%

6.4%

6.6%

6.8%

7.0%

7.2%

'15 '16 '17 '18 '19

CHINA GDP GROWTH RATE

39Approved

Source: National Bureau of Statistics of China.

(Y-o-Y)

0%

2%

4%

6%

8%

10%

12%

14%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

'06 '08 '10 '12 '14 '16 '18

Grade A Average Assumed Achievable Rent (LHS)Grade B Average Assumed Achievable Rent (LHS)Grade A Vacancy rate (RHS)Grade B Vacancy rate (RHS)

TOKYO'S 23 WARDS GRADE A & B OFFICE RENT AND VACANCY

41Approved

Source: CBRE (September 2018).

(JPY/tsubo/mon)


REAL ESTATE – ASIA (continued)

GDP growth rebounded in the fourth quarter. CNY strengthened against USD in late 2018 and into early 2019.

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

'14 '15 '16 '17 '18

KOREA GDP GROWTH

(Y-o-Y)

48Approved

Source: Bank of Korea.

6.0

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

7.0

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

USD VS. CNY

Source: Bloomberg.

(¥)

103ApprovedSeoul office vacancy remains high as new supply

continues to weigh on the market.Cap rate spreads remain wide at over 250 bps.

0%

2%

4%

6%

8%

10%

12%

14%

16%

'04 '06 '08 '10 '12 '14 '16 '18

SEOUL OFFICE VACANCY RATE

45Approved

Source: Jones Lang Lasalle Research.

(100)

0

100

200

300

400

500

600

700

800

900

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

'05 '07 '09 '11 '13 '15 '17

Spread (RHS)Cap Rate (LHS)5-Year Treasury Bond (LHS)

SEOUL PRIME OFFICE CAP RATE AND SPREAD OVER 5-YEAR TREASURY YIELD

(Bps)

Q4 ‘18

46Approved

Source: Savills Research.Note: 5-year treasury is average for quarter.


NET LEASE REAL ESTATE

Office cap rates continue to compress, while industrial cap rates have increased since Q2 2018.

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

Q1 '06 Q1 '07 Q1 '08 Q1 '09 Q1 '10 Q1 '11 Q1 '12 Q1 '13 Q1 '14 Q1 '15 Q1 '16 Q1 '17 Q1 '18 Q1 '19

U.S. Single-Tenant OfficeU.S. Single-Tenant IndustrialU.S. Single-Tenant Retail

AVERAGE SINGLE-TENANT CAP RATES

66Approved

Source: Real Capital Analytics.

While there was a slight decline in Q1 2019 volume, overall levels remain above prior years.

$0

$5

$10

$15

$20

$25

$30

$35

Q1 '06 Q1 '07 Q1 '08 Q1 '09 Q1 '10 Q1 '11 Q1 '12 Q1 '13 Q1 '14 Q1 '15 Q1 '16 Q1 '17 Q1 '18 Q1 '19

U.S. Single-Tenant OfficeU.S. Single-Tenant IndustrialU.S. Single-Tenant Retail

12-MONTH ROLLING SINGLE-TENANT DEAL VOLUME

($ Billions)

67Approved

Source: Real Capital Analytics.


Q1 2019 year-over-year deal volume increased 34% in North America and 13% globally.

$0

$100

$200

$300

$400

$500

$600

$700

$800

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Q1'18

Q2'19

GLOBAL LBO DEAL VALUE

28Approved

Source: Preqin.

($ Billions)

EMC/Kraft $107

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Q1'18

Q2'19

Source: Preqin.

($ Billions)

EMC/Kraft $107

NORTH AMERICA LBO DEAL VALUE

28BApprovedPRIVATE EQUITY

Buyout dry powder at March 31, 2019, which stood at an all-time record of $736 billion, increased 6% from the end of 2018.

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

$2,250

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

All Other PEBuyout

GLOBAL PRIVATE EQUITY DRY POWDER

($ Billions)

29Approved

Other PE Funds: Real Estate, Venture, Infrastructure, Growth, Distressed, Mezzanine, Other.Source: Preqin.


PRIVATE EQUITY (continued)

LBO multiples in the first quarter of 2019 (10.3x) remained high and were slightly below the 10.6x level set in calendar 2018.

34% 35% 37% 35% 33% 30% 31% 31% 39% 46% 41% 38% 38% 36% 37% 40% 41% 41% 43% 42%

4.1x 3.6x 3.8x 4.3x 4.7x 5.5x 5.3x 6.2x5.1x

3.9x 4.7x 5.1x 5.2x 5.4x 5.8x 5.8x 5.5x 5.8x 5.8x 5.8x

2.7x2.4x 2.8x

2.8x 2.6x3.0x 3.1x

3.5x4.0x

3.8x3.8x 3.7x 3.5x 3.4x 3.9x 4.5x 4.5x 4.9x 4.8x 4.5x

6.7x6.0x

6.6x7.1x 7.3x

8.4x 8.4x

9.7x9.1x

7.7x8.5x 8.8x 8.7x 8.8x

9.7x10.3x 10.0x

10.7x 10.6x 10.3x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Equity / EBITDA

Total Leverage

LBO PURCHASE PRICE BREAKDOWN

Equity Contribution

30Approved

Source: S&P Capital IQ LCD.

Q1 2019 was a strong period year-over-year with the number of exits increasing 3%; however, the dollar volume was weaker, with a year-over-year decrease of 30% reflecting smaller monetizations.

105Approved

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Q1 '18 Q1 '19

Sale to Strategic (LHS)Sale to Sponsor* (LHS)IPO (LHS)Aggregate Exit Value (RHS)

PRIVATE EQUITY EXITS

Number of Exits Value of Exits ($ Billions)

* Sale to Sponsor includes management-led buyouts.Source: Preqin.

This book is for informational purposes only and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. The information contained herein (A) is subject to change without notice, (B) is not, and may not be relied on in any manner as legal, tax or investment advice, and (C) may include “forward-looking statements,” which can be identified by the use of forward looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof or other comparable terminology. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements.

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