guide to alternatives - j.p. morgan...guide to alternatives |-5% 0% 5% 10% 15% 20% 25% global...

Guide to Alternatives

MARKET INSIGHTS

|1Q 2020 As of February 29, 2020

2

Guide to Alternatives |

Private markets27. Private equity returns and dry powder28. Private equity deals and multiples29. Private equity deal trends30. U.S. public vs. private equity31. Private equity exit activity32. Private equity distributions and the secondary market33. Credit returns across recent economic cycles: 2004 – 201934. U.S. direct lending risk premiums35. Credit market participants and issuance36. U.S. middle market lending: Multiples and spreads37. Loan ratings and recovery rates38. Private market risks

Hedge funds39. Hedge fund strategy returns40. Hedge funds and manager selection41. Hedge fund flows42. Hedge fund exposures43. Hedge funds and traditional portfolios44. Hedge funds and volatility

Alts in aggregate3. Alternatives fundraising4. Public and private market correlations5. Alternatives and manager selection6. Yield alternatives7. Alternatives and ESG

Global real estate 8. Global real estate investment9. U.S. real estate dynamics10. U.S. real estate: Office and retail11. U.S. real estate: Industrial12. U.S. REITs and real estate13. U.S. public and private real estate14. U.S. REITs sector returns15. European property yields and flows16. Sources of European property returns17. APAC real estate: Industrial18. APAC real estate: Japan residential and Australia office

Global infrastructure and transport19. Global infrastructure investment20. Sources of global infrastructure returns21. U.S. utilities: ROE, inflation and rates22. Global renewable energy: Cost and investment23. Global renewable energy: Share and sources24. Global trade by geography and product25. Global banks’ shipping finance26. Global transportation dynamics

Page reference

Prepared by:David Lebovitz, Global Market Strategist, Market Insights, J.P. Morgan Asset ManagementAnita Sonawane, Associate, Alternatives Solutions Group, J.P. Morgan Asset ManagementTyler Voigt, CFA, Associate, Market Insights, J.P. Morgan Asset Management

2

3


240 244336

426 435541

628 628 59540 68

72

69104

117

132 120107

7591

116

123146

134

137 148151

2732

49

47

58

70

82 9498

36

66

73

75

93

89

97 107109

$0

$200

$400

$600

$800

$1,000

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

Private equity Private credit Real estate Infrastructure Natural resources

Global private capital fundraisingBillions USD

Alternatives fundraising

Source: Preqin, HFRI, J.P. Morgan Asset Management.Fundraising categories are provided by Preqin, and represent their estimate of annual capital raised in closed-end funds. Data may not sum to total due to rounding.Data is based on availability as of February 29, 2020.

$419

$502

$646

$740

$836

$952

$1,077 $1,096$1,059

3

Alts

in a

ggre

gate

4

Guide to Alternatives |Public and private market correlationsFi

nanc

ial

asse

tsPr

ivat

e m

arke

tsG

loba

l re

al e

stat

e

Oth

er

real

as

sets

Public and private market correlations10-years, quarterly returns

Source: MSCI, Bloomberg Barclays, NCREIF, Cliffwater, Burgiss, HFRI, J.P. Morgan Asset Management. RE – real estate. Global equities: MSCI ACWorld Index. Global Bonds: Bloomberg Barclays Global Aggregate Index. U.S. Core Real Estate: NCREIF Property Index – Open End DiversifiedCore Equity component. Europe Core Real Estate: IPD Global Property Fund Index – Continental Europe. Asia Pacific (APAC) Core Real Estate: IPDGlobal Property Fund Index – Asia-Pacific. Global infrastructure (Infra.): MSCI Global Quarterly Infrastructure Asset Index (equal-weighted blend).U.S. Direct Lending: Cliffwater Direct Lending Index. Global Private Equity: Cambridge Associates Global Private Equity Index. U.S. Venture Capital:Cambridge Associates U.S. Venture Capital Index. Hedge fund indices include equity long/short, relative value, and global macro and are all fromHFRI. All correlation coefficients are calculated based on quarterly total return data for the period 06/30/09 – 09/30/19. Returns are denominated inUSD.Data is based on availability as of February 29, 2020.

Hed

ge

fund

s4

Alts

in a

ggre

gate

2009 - 2019 Global Bonds

Global Equities

U.S. Core RE

Europe Core RE

APAC Core RE

Global Core Infra

Direct Lending

Venture Capital

Private Equity

Equity Long/Short

Relative Value Macro

Global Bonds 1.0

Global Equities 0.3 1.0

U.S. Core RE -0.3 -0.5 1.0

Europe Core RE (Continental Europe) -0.4 -0.3 0.6 1.0

APAC Core RE -0.3 -0.4 0.8 0.7 1.0

Global Core Infra -0.2 -0.4 0.4 0.1 0.2 1.0

Direct Lending 0.1 0.5 -0.1 -0.3 -0.3 0.1 1.0

Venture Capital -0.2 0.2 0.2 0.4 0.1 0.1 0.2 1.0

Private Equity 0.2 0.8 -0.3 -0.1 -0.2 -0.1 0.6 0.5 1.0

Equity Long/Short 0.2 1.0 -0.4 -0.3 -0.4 -0.3 0.6 0.3 0.9 1.0

Relative Value 0.3 0.9 -0.6 -0.5 -0.6 -0.3 0.7 0.1 0.7 0.9 1.0

Macro 0.3 0.5 -0.2 0.0 -0.2 -0.3 0.2 0.1 0.3 0.5 0.4 1.0

5


-5%

0%

5%

10%

15%

20%

25%

Globalequities

Globalbonds

U.S. corereal estate

U.S. non-corereal estate

Globalprivate equity

U.S. venturecapital

Hedgefunds

Alternatives and manager selection

Private and public manager dispersionBased on returns over a 10 year window*

Alts

in a

ggre

gate

Sources: Lipper, NCREIF, Cambridge Associates, HFRI, J.P. Morgan Asset Management. Global equities (large cap) and global bonds dispersion are based on the world large stock and world bond categories, respectively. *Manager dispersion is based on: 2Q 2009 – 2Q 2019 annual returns for global equities, global bonds and U.S. core real estate. Hedge funds are based on 4Q 2009 to 4Q 2019 annual returns. U.S. non-core real estate, U.S. private equity and U.S. venture capital are represented by the 10-year horizon internal rate of return (IRR) ending 2Q 2019. Data is based on availability as of February 29, 2020.

5

11.8%

8.9%

4.1%

2.5%

8.9%

10.6%

2.5%

15.4%

3.3%

21.2%

-2.2%

20.0%

-0.8%

13.2%

Median

Top quartile

Bottom quartile

6

Guide to Alternatives |Yield alternatives

Source: BAML, Barclays, Bloomberg, Clarkson, Cliffwater, Drewry Maritime Consultants, Federal Reserve, FTSE, MSCI, NCREIF, FactSet, J.P. Morgan Asset Management. Yields are as of 12/31/2019, except Direct Lending, Global Infrastructure, EMEA, APAC and U.S. Real Estate (9/30/2019). Global Transport: Levered yields for transport assets calculated as the difference between charter rates (rental income), operating expenses, debt amortization and interest expenses, as a percentage of equity value. Yields for each of the sub-vessel types are calculated and respective weightings are applied to arrive at the current levered yields for Global Transportation; Preferreds: BAML Hybrid Preferred Securities; U.S. direct lending: Cliffwater Direct Lending Index; U.S. High Yield: Bloomberg US Aggregate Corporate High Yield; Global Infrastructure: MSCI Global Infrastructure Asset Index-Low risk; U.S. Real Estate: NCREIF-ODCE Index; Global REITs: FTSE NAREIT Global REITs; International Equity: MSCI AC World ex-U.S.; U.S. 10-year: 10-year U.S. Treasury yield; U.S. Equity: MSCI USA, Europe core real estate: IPD Global Property Fund Index – Continental Europe. Asia Pacific (APAC) core real estate: IPD Global Property Fund Index – Asia-Pacific. Euro Govt. (7-10 yr.): Bloomberg Barclays Euro Aggregate Government –Treasury (7-10Y).Data is based on availability as of February 29, 2020.

Alts

in a

ggre

gate Asset class yields

Percent

6

Fixed income

Equities

Alternatives

9.9% 9.9%

5.2% 5.1% 5.0%4.6%

4.4% 4.2% 4.2%

3.0%

1.9% 1.8%

0.2%0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

7


Source: US SIF Foundation, Company Reports, J.P. Morgan IDS Data Science Team, J.P. Morgan Asset Management.Environmental, social and governance (ESG). Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated. *2020 ESG mentions are YTD.Data is based on availability as of February 29, 2020.

Alternatives and ESG

ESG mentions on earnings callsRussell 3000, number of mentions, annual

Alts

in a

ggre

gate

7

1357

135 125

283

24

70

8570

272

1

5

312

33

0

100

200

300

400

500

600

700

2010 2012 2014 2016 2018

ESG incorporation by alternative investment fundsBillions USD

Property funds and REITs

Hedge funds

Private equity and venture capital funds

0

50

100

150

200

250

300

350

400

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20*

8

Guide to Alternatives |Global real estate investment

Sources: CBRE Research, RCA (Americas), J.P. Morgan Asset Management.APAC is Asia Pacific. EMEA is Europe, Middle East and Africa. Data is based on availability as of February 29, 2020.

Global real estate investmentBillions USD

Real

est

ate

8

$0

$50

$100

$150

$200

$250

$300

$350

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

EMEAAmericas

APAC

9


-10%

-5%

0%

5%

10%

15%

'88 '91 '94 '97 '00 '03 '06 '09 '12 '15 '18

U.S. real estate dynamics

Source: NCREIF, Federal Reserve, BLS, FactSet, J.P. Morgan Asset Management.The cap rate, which is computed as the net operating income over sales price, is the rate of return on a real estate investment property. Data is based on availability as of February 29, 2020.

U.S. vacancy rates by property typePercent

U.S. real estate cap rate spreadsTransactions based, spread to 10y UST, 4-quarter rolling average

U.S. real estate construction costsNonresidential fixed investment in structures, price index, y/y % chg.

Real

est

ate

Dec. 2019: 2.3%

9

0%

5%

10%

15%

20%

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

Apartment Industrial Office Retail

0%

1%

2%

3%

4%

5%

'98 '01 '04 '07 '10 '13 '16 '19

Dec 2019: 2.8%

Average: 2.8%

10


Sources: CBRE, Census Bureau, J.P. Morgan Asset Management.2020 data on inventory and penetration is an estimate. Gross leasable area (GLA) data is as of 2017.Data is based on availability as of February 29, 2020.

U.S. real estate: Office and retail

Flexible office space: Inventory and penetrationMillions of square feet, % penetration

Mall leasing and retail sales growthGross leasable area, 2014-2019 retail sales growth

10

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

10

20

30

40

50

60

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

10

20

30

40

50

60

70

80

90

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Inventory (mil. sq. ft.) Penetration (%)

Real

est

ate

GLA (mil. sq. ft.) Retail sales growth (%)

11

Guide to Alternatives |U.S. real estate: Industrial

Sources: CBRE Econometric Advisors, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.

U.S. warehouse space under constructionMillions of square feet (MSF), vacancy rate

Real

est

ate

0%

2%

4%

6%

8%

10%

12%

0

50

100

150

200

250

300

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

MSF under construction Vacancy rate

Build-to-suit

Speculative

11

12


-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

'80 '82 '83 '85 '86 '88 '89 '91 '92 '94 '95 '97 '98 '00 '01 '03 '04 '06 '07 '09 '10 '12 '13 '15 '16 '18 '19

Direct real estate/S&P 500 correlation

REIT/S&P 500 correlation

U.S. REITs and real estate

Source: NAREIT, NCREIF, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.Real estate investment trusts (REITs). Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not necessarily a reliable indicator for current and future performance. Data is based on availability as of February 29, 2020.

U.S. REITs, real estate, and equities12-quarter rolling correlations, total return

Real

est

ate

Housing bubble/ Euro debt crisis1980 “Double dip

recession”1987 Crash/ S&L Crisis

Recession

12

13


13

Source: NCREIF, Wilshire, CISCO, J.P. Morgan Asset Management.ODCE is the NCREIF Fund Index – Open End Diversified Core Equity, which is a benchmark for U.S. core real estate. WILRESI is Wilshire US Real Estate Securities Index, which is a benchmark for U.S. REITs. *Other in ODCE consists of hotels, healthcare, self-storage and land. **Other in WILRESI consists of single-family homes among additional property types.Megawatts indicates data center energy capacity. Data is based on availability as of February 29, 2020.

U.S. public and private real estate

Composition of U.S. private and public real estate indicesPercent

Data centers absorption and constructionMegawatts, 2019

Real

est

ate

13

0 100 200 300

Atlanta

Chicago

Phoenix

New York Tri-State

Dallas/Ft.Worth

Silicon Valley

Northern Virginia

Net Absorption Under Construction

Residential, 26% Residential,

19%

Industrial, 20%

Industrial, 14%

Office, 33%

Office, 13%

Retail, 16%

Retail, 13%

Hotels, 5%

Healthcare, 12%

Self Storage, 7%

Data Centers, 10%

Manufactured Homes, 3.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ODCE WILRESI

Other*, 4.5% Other**, 3.4%

14

Guide to Alternatives ||

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Ann. Vol.

Apa rtme nts Se lf S tora ge Industria l Mfgd. Home s Mfgd. Home s Se lf S tora ge Industria l Mfgd. Home s Mfgd. Home s Mfgd. Home s Mfgd. Home s Industria l

4 7 .0% 3 5 .2 % 3 1.3 % 10 .5 % 4 6 .2 % 4 0 .6 % 3 0 .7 % 2 4 .9 % 11.4% 4 9 .1% 22 .9 % 2 0 .9 %

Re giona l Ma lls

Re giona l Ma lls

Re giona l Ma lls

Se lf S tora ge Apa rtments Mfgd. Home s Mfgd. Home s Industria l He a lth Care Industria l Se lf S tora ge Shopping Ce nte rs

3 4 .6% 2 2 .0 % 2 8 .2 % 9 .5 % 3 9 .6 % 2 5 .6 % 14 .2 % 2 0 .6 % 7 .6 % 48 .7 % 16 .8 % 17 .9 %

Shopping Ce nte rs

Mfgd. Home s Shopping Ce nte rs

Industria l Hea lth Care Apa rtments Offic e All Equity Apa rtme nts Offic e Industria l Re giona l Ma lls

3 0 .8% 2 0 .4 % 2 5 .0 % 7 .4 % 3 3 .3 % 16 .5 % 13 .2 % 8 .7 % 3 .7 % 3 1.4 % 16 .3 % 16 .8 %

Se lf S torage Apa rtments He a lth Ca re Offic e Re giona l Ma lls

Shopping Ce nte rs

All Equity Offic e Se lf S tora ge All Equity Apa rtme nts Hea lth Care

2 9 .3% 15 .1% 2 0 .4 % 5 .6 % 3 2 .6 % 4 .7 % 8 .6 % 5 .2 % 2 .9 % 28 .7 % 14 .4 % 16 .1%

All Equity He a lth Ca re Se lf S tora ge Shopping Ce nte rs

Se lf S tora ge Re giona l Ma lls

Hea lth Care Se lf S tora ge Industria l Apa rtme nts All Equity Se lf S tora ge

2 7 .9% 13 .6 % 19 .9 % 5 .0 % 3 1.4 % 4 .2 % 6 .4 % 3 .7 % - 2 .5 % 26 .3 % 12 .6 % 16 .0 %

Mfgd. Home s All Equity All Equity All Equity Shopping Ce nte rs

All Equity Shopping Ce nte rs

Apa rtme nts All Equity Shopping Ce nte rs

He a lth Ca re Offic e

2 7 .0% 8 .3% 19 .7 % 2 .9 % 3 0 .0 % 2 .8 % 3 .7 % 3 .7 % - 4 .0 % 25 .0 % 10 .1% 15 .2 %

He a lth Ca re Shopping Ce nte rs

Offic e Re giona l Ma lls

All Equity Industria l Apa rtme nts Hea lth Care Re giona l Ma lls

He a lth Care Offic e Mfgd. Home s

19 .2 % - 0 .7 % 14 .2 % - 1.0 % 2 8 .0 % 2 .6 % 2 .9 % 0 .9 % - 7 .0 % 2 1.2 % 9 .1% 14 .1%

Industria l Offic e Mfgd. Home s Apa rtments Offic e Offic e Re giona l Ma lls

Re giona l Ma lls

Offic e Se lf S tora ge Shopping Ce nte rs

All Equity

18 .9 % - 0 .8 % 7 .1% - 6 .2 % 2 5 .9 % 0 .3 % - 5 .2 % - 2 .7 % - 14 .5 % 13 .7 % 8 .6 % 13 .4 %

Offic e Industria l Apa rtments He a lth Ca re Industria l Hea lth Care Se lf S tora ge Shopping Ce nte rs

Shopping Ce nte rs

Re giona l Ma lls

Re giona l Ma lls

Apa rtments

18 .4 % - 5 .2 % 6 .9% - 7 .1% 2 1.0 % - 7 .2 % - 8 .1% - 11.4% - 14 .5 % - 9 .1% 8 .4 % 13 .3 %

2010-2019

U.S. REITs sector returns

Sources: FTSE NAREIT, FactSet, J.P. Morgan Asset Management.All indices are from FTSE NAREIT. Mfgd. Homes represents manufactured homes.Data is based on availability as of February 29, 2020.

Real

est

ate

14

15


Sources: RCA, CBRE, J.P. Morgan Asset Management.EU-15 is Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom. Apt is apartment. Data is based on availability as of February 29, 2020.

European property yields and flows

EU-15 property spreads by sectorSpread to Euro Govt. (7-10 yr.)

Capital flows by location and property type3Q 2019, Billions EUR

15

Real

est

ate

-1%

0%

1%

2%

3%

4%

5%

6%

7%

'98 '01 '04 '07 '10 '13 '16 '19

€ 0 € 5 € 10

Madrid Office

Frankfurt Office

Amsterdam Apt

AmsterdamOffice

Berlin Apt

Madrid Apt

Munich Office

Berlin Office

London Office

Paris Office

Domestic Continental Global

€13.6

€10.4

€4.1

€3.9

€3.6

€3.0

€2.6

€2.5

€2.3

€2.2

16


Sources: MSCI, J.P. Morgan Asset Management.All returns are based on the respective MSCI IPD Global Property Index, and show one-year returns from income and capital appreciation.Past performance is not indicative of future results. Alternative investments carry more risk than traditional investments and are recommended only for long-term investment. Some alternative investments may be highly leveraged and rely on speculative investments that can magnify the potential for loss or gain. Diversification does not guarantee investment returns or eliminate the risk of loss.Data is based on availability as of February 29, 2020.

U.K. property returnsAnnual returns from income and capital appreciation

Germany property returnsAnnual returns from income and capital appreciation

France property returnsAnnual returns from income and capital appreciation

Sources of European property returns

Real

est

ate

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

IncomeCapital appreciation

-10%

-5%

0%

5%

10%

15%

20%

25%

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18


-10%

-5%

0%

5%

10%

15%

20%

25%

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18


16

17


Sources: Oxford Economics, Jones Lang LaSalle REIS, CBRE, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.

APAC real estate: Industrial

Real

est

ate

APAC online retail salesPercent of total retail sales

APAC office and industrial pricingYields

17

0%

1%

2%

3%

4%

5%

6%

7%

New York Seoul Singapore ChinaTier I

Auckland Sydney Hong Kong Tokyo

Prime Office Prime Warehouse

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

China South Korea UnitedStates

Japan Australia NewZealand

Singapore

18


Sources: Association of Real Estate Securitization, Japan Property Index, Jones Lang LaSalle, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.

APAC real estate: Japan residential and Australia office

Real

est

ate

Japan multi-familyOccupancy, percent

Australia prime officeNet effective rent, index level; occupancy, percent

18

90%

92%

94%

96%

98%

100%

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

Tokyo 23 Wards Osaka Nagoya Fukuoka

2008 financial crisis

Tohoku earthquake

85%

90%

95%

100%

60

80

100

120

140

160

180

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

Sydney NER Melbourne NERSydney Occupancy Melbourne Occupancy

Net effective rent index Occupancy

19

Guide to Alternatives |Global infrastructure investment

Source: McKinsey Global Institute, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.

Average annual infrastructure needUSD trillions, constant 2017 dollars

19

Infr

astr

uctu

re

Annual spending, % of GDP 1.0 0.4 0.1 0.1 1.3 0.5 0.6

$0.9

$0.4

$0.1$0.1

$1.1

$0.5

$0.5

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

Roads Rail Ports Airports Power Water Telecom Total

$3.6

4.0

20

Guide to Alternatives |Sources of global infrastructure returns

Source: MSCI, J.P. Morgan Asset Management.Infrastructure returns represented by the “low risk” category of the MSCI Global Quarterly Infrastructure Asset Index. Data show rolling one-year returns from income and capital appreciation. The chart shows the full index history, beginning in the first quarter of 2009.Past performance is not indicative of future results. Alternative investments carry more risk than traditional investments and are recommended only for long-term investment. Some alternative investments may be highly leveraged and rely on speculative investments that can magnify the potential for loss or gain. Diversification does not guarantee investment returns or eliminate the risk of loss.Data is based on availability as of February 29, 2020.

Infr

astr

uctu

re

Global core infrastructure returnsRolling 4-quarter returns from income and capital appreciation

20

-5%

0%

5%

10%

15%

20%

25%

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


21


Source: America’s Electric Utilities, Moody’s, SNL.com, Bloomberg, BLS, JPMAM Global Alternatives Research, J.P. Morgan Asset Management. RoE is return on equity, which is the amount of net income returned as a percentage of shareholders’ equity. Average cost of debt is represented by the trailing 6-month average of Moody’s utilities yields. Grey bars denote recessionsData is based on availability as of February 29, 2020.

U.S. utilities: RoE, inflation and rates

U.S. utilities' average allowed RoE and interest rates U.S. utilities’ return on equity and inflation RoE (2-year lagged), CPI % change vs. prior year, 1980-2018

Infr

astr

uctu

re

Inflation (%)

Ret

urn

on e

quity

(%)

R2 = 0.54

211 10 19 28 37 46 55 64 73 82 91 100

109

118

127

136

145

154

163

172

181

190

20

20.5

21

21.5

22

22.5

23

23.5

24

24.5

25

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Electric allowed RoE Natural gas allowed RoEUtility bond yields 10-year Treasury rate

3

5

7

9

11

13

15

17

0 2 4 6 8 10 12 14

22


Source: Lazard, Bloomberg, J.P. Morgan Asset Management. *LCOE is levelized cost of energy, the net present value of the unit-cost of electricity over the lifetime of a generating asset. It is often taken as a proxy for the average price that the generating asset must receive in a market to break even over its lifetime.Data is based on availability as of February 29, 2020.

Global renewable energy: Cost and investment

Cost of wind, solar, natural gas and coalMean LCOE*, dollar per megawatt hour

Global new investment in clean energyBillions USD

Infr

astr

uctu

re

22

$0

$50

$100

$150

$200

$250

$300

$350

$400

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

WindSolarNatural gasCoal

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

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

Solar Wind Other Biofuels

23

Guide to Alternatives |Global renewable energy: Share and sources

Share of energy from renewable sources% of total energy, 2018

Infr

astr

uctu

re

0%

10%

20%

30%

40%

50%

60%

70%

80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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

Coal Natural Gas Nuclear Renewables Petroleum and Other

U.S. electricity generation by major sourcePercent

Source: Eurostat, METI, BP Statistical, EIA, J.P. Morgan Asset Management.Renewables consists of wind, hydropower, solar, biomass and geothermal. Data is based on availability as of February 29, 2020.

23

24


Source: UNCTAD, Clarksons, J.P. Morgan Asset Management.Dry product consists of coal, ore, soybeans and bulk trade.Data is based on availability as of February 29, 2020.

Global trade by geography and product

Tran

spor

t

World seaborne trade by productEstimated trillion ton miles

24

International shipping trade by regionPercent share in world tonnage, percent

14%

16%

41%

22%

7%

1%

19%

61%

14%

5%

0% 10% 20% 30% 40% 50% 60%

Oceania

Europe

Asia

Americas

AfricaUnloaded

Loaded

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

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

Dry bulk

Oil and oil products

Container

Gas

25

Guide to Alternatives |Global banks’ shipping finance

Source: Dealogic, UNCTAD, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.

0

50

100

150

200

250

300

350

400

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

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

Deal value (Billions USD) No. of deals

Shipping loans volume

Tran

spor

t

25

26


Source: UNCTAD, U.S. Bureau of Transportation Statistics, J.P. Morgan Asset Management.Numbers may not sum to 100% due to rounding.Data is based on availability as of February 29, 2020.

Global transportation dynamics

Average age of U.S. commercial aircraftYears

26

Age distribution of global shipping fleetPercent

10.4

11.8

12.7

13.3

8

9

10

11

12

13

14

1993 2000 2010 2018

Tran

spor

t

13%

22%

15%

9%

42%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0 - 4 years 5 - 9 years 10 - 14 years 15 - 19 years +20 years

27


Source: Pitchbook, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.

Private equity returns and dry powder

Private equity dry powderBillions USD, by vintage year

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Private equity IRRsBy size bucket and vintage

0%

5%

10%

15%

20%

25%

30%

2000 – 2003 2004 – 2008 2009 – 2013

Median

Top quartile

Bottom quartile

$12.9 $21.3$31.6

$61.7

$99.9

$271.6

$315.9

$434.2

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

'12 '13 '14 '15 '16 '17 '18 '19

28


Source: Pitchbook, S&P LCD, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.

Private equity deals and multiples

U.S. LBOs: purchase price multiplesEquity and debt over trailing EBITDA

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4.6x5.4x 5.3x

6.1x

5.0x

3.8x4.6x

4.9x 5.1x 5.3x5.7x 5.6x 5.4x 5.7x 5.8x 5.8x

2.6x

3.0x 3.1x

3.5x

4.0x

3.8x

3.8x3.7x 3.5x 3.4x

3.9x4.5x

4.5x

4.9x 4.8x

5.6x

0

2

4

6

8

10

12

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

Equity

Debt

Global private equity dealsShare of total

0%

10%

20%

30%

40%

50%

60%

Buyout/LBO Add-on Growth equity/platform creation

2019Average (2006-2019)

29


-60%

-40%

-20%

0%

20%

40%

60%

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

Sources: BEA, Pitchbook, FactSet, J.P. Morgan Asset Management.WTI oil price is a quarterly average. Software investment is represented by nonresidential fixed investment in software. Data is based on availability as of February 29, 2020.

Private equity deal trends

Oil prices and natural resource exitsEnergy & materials exit count, WTI oil price, y/y % change

Software investment and private equity% U.S. PE deals targeting software companies, software inv. % GDP

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29

Energy & materials exits(2Qma, 1Q lag)

WTI oil price Software % total PE deals (LHS)Software investment % GDP (RHS)

1.2%

1.3%

1.4%

1.5%

1.6%

1.7%

1.8%

1.9%

2.0%

10%

12%

14%

16%

18%

20%

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

30


3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

Private vs. public equity sector weights

Sources: Cambridge Associates, World Federation of Exchanges, Standard & Poor’s, J.P. Morgan Asset Management.*Number of listed U.S. companies is represented by the sum of number of companies listed on the NYSE and the NASDAQ.**Other includes real estate and utilities. Percentages may not sum due to rounding .Data is based on availability as of February 29, 2020.

Number of listed U.S. companies*

2019: 5,524

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U.S. public vs. private equity 30

1.8%

3.2%

3.3%

4.1%

6.8%

8.6%

13.3%

13.5%

15.3%

30.2%

6.4%

7.3%

5.0%

2.8%

10.2%

13.1%

10.2%

9.4%

14.2%

21.5%

0% 5% 10% 15% 20% 25% 30% 35%

Other**

Cons. Staples

Energy

Materials

Comm. Services

Financials

Cons. Disc.

Industrials

Healthcare

Tech

S&P 500U.S. private equity

31


U.S. IPOs with negative earningsPercent of all initial public offerings that year

Number of IPOs

Private equity exit activity

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Sources: Pitchbook, Jay Ritter, University of Florida, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.

Private equity exits by typeBillions USD

2019: 74%

31

2019: 110

0

100

200

300

400

500

600

700

800

'80 '84 '88 '92 '96 '00 '04 '08 '12 '16

0%

20%

40%

60%

80%

100%

'80 '84 '88 '92 '96 '00 '04 '08 '12 '16$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

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

32


Sources: Preqin, Greenhill, London Business School, Pitchbook, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.

Private equity distributions and the secondary market

Global capital calls and distributionsBillions USD

Secondary market transaction volume and pricingSecondary buyouts by year, $bn, percent of net asset value (NAV)

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32

-$600

-$400

-$200

$0

$200

$400

$600

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

Capital distributedCapital calledNet distribution

50%

60%

70%

80%

90%

100%

110%

120%

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

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

Secondary buyouts (LHS, $bn)

Secondary price (RHS, % of NAV)

33


33

ExpansionManufacturing ISM > 50 and rising

Credit returns across recent economic cycles: 2004 - 2019

Late cycle coolingManufacturing ISM > 50 and falling

RecessionManufacturing ISM < 50 and falling

TurnaroundManufacturing ISM < 50 and rising

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Source: Institute for Supply Management, Bloomberg, Barclays, Credit Suisse, Cliffwater, J.P. Morgan Asset Management. The ISM Manufacturing Index is a nationwide survey of purchasing executives. A reading greater than 50 indicates increased economic activity and a reading less than 50 indicates decreased economic activity. 10y UST: Bloomberg Barclays U.S. Treasury Bellwethers (10y), 2y UST: Bloomberg Barclays U.S. Treasury Bellwethers (2y), U.S. IG: Bloomberg Barclays U.S. Aggregate Corporate Investment Grade, U.S. HY: Bloomberg Barclays U.S. Aggregate Corporate High Yield, U.S. leveraged loans: Credit Suisse Leveraged Loan Index, U.S. direct lending: Cliffwater Direct Lending Index. All returns are from 12/31/2004 through 12/31/2019, except for U.S. direct lending which is through 9/30/2019. Data is based on availability as of February 29, 2020.

33

-0.3%

0.2%

1.1%

2.9%2.2%

3.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

10y UST 2y UST U.S. IG U.S. HY U.S.leveraged

loans

U.S.direct

lending

2.9%1.4%

-0.3%

-3.1%-3.8%

-0.9%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%


loans

U.S.direct

lending

2.3%

0.7%

1.6% 1.4%

0.9%

2.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


loans

U.S.direct

lending

-1.6%-0.1%

4.6%

9.4%8.1%

2.3%

-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%


loans

U.S.direct

lending

34

Guide to Alternatives |U.S. direct lending risk premiums

Source: Cliffwater, J.P. Morgan Asset Management.Data is based on availability as of February 29, 2020.

Direct U.S. middle market loans risk premiumsPercent

34

14.5%

2.2%

3.7%

2.1%

2.6%

1.9%

2.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Risk-free rate Broadly syndicatedloans

Directly originated,upper middle market

Non-sponsorborrowers

Lower middle market Second lien,subordinated debt

Total

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35


Source: Ares, S&P LCD, J.P. Morgan Asset Management.Covenant-lite loans are a type of financing that is issued with fewer restrictions on the borrower with regard to collateral, level of income, and loan payment terms, and fewer protections for the lender, including financial maintenance tests that measure the debt-service capabilities of the borrower.Data is based on availability as of February 29, 2020.

Credit market participants and issuance

U.S. leveraged loan market participantsShare of total market, percent

Covenant-lite loan issuancePercent of U.S. issuance in institutional leveraged loans

Global banks Non-bank companies and funds

35

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72%

46%

20%13% 16%

28%

54%

80%87% 84%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1994 2000 2006 2012 20190%

10%

20%

30%

40%

50%

60%

70%

80%

90%

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

36


5.8x

4.5x

3.2x

4.3x 4.3x 4.5x 4.6x5.3x 5.3x 5.1x 5.5x 5.6x 5.5x

3.4x

3.8x

3.4x

4.1x 3.7x 3.3x

4.1x

4.3x

5.3x5.0x

6.1x5.0x

7.4x

0x

2x

4x

6x

8x

10x

12x

14x

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

U.S. middle market: Multiples and spreads

Source: S&P LCD, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.

U.S. middle market LBOs: purchase price multiplesDeals ≤ $50M EBITDA

DebtEquity

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U.S. middle market and large corporate lending spreadsBased on 3-month U.S. dollar LIBOR

36

L + 200

L + 300

L + 400

L + 500

L + 600

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

Middle MarketLarge Corporate

37


Source: S&P LCD, Moody’s, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.

Loan ratings and recovery rates

Leveraged loan downgrades and upgradesRatio of downgrades to upgrades, rolling 12 months

0

1

2

3

4

5

6

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

Average corporate debt recovery ratesVolume weighted recovery rates based on trading prices

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Average (1983-2019)2019

37

Downgradesoutpacing upgrades

Upgrades outpacingdowngrades

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Guide to Alternatives |Private market risks

U.S. LBOs volume by type: Sponsor-to-sponsorPercent

Private debt fundraising by first time fundsCumulative capital raised and fund count

Source: S&P LCD, Pitchbook, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.

0%

10%

20%

30%

40%

50%

60%

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

$6.5 $8.2 $12.0 $12.9 $16.6 $17.5 $24.8 $27.2 $30.1 $32.0 $34.6

13

19

2730

37

43

51

58

6467

73

0

10

20

30

40

50

60

70

80

$0

$5

$10

$15

$20

$25

$30

$35

$40

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

Fund count (RHS)Capital raised ($bn, LHS)

38

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Guide to Alternatives ||

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Ann. Vol.

Globa l Equitie s

Globa l Bonds

Globa l Equitie s

Globa l Equitie s

Globa l Ma c ro

Eq. Ma rke t Ne utra l Distre sse d Globa l

Equitie sMe rge r

Arbitra geGloba l

Equitie sGloba l

Equitie sGloba l

Equitie s

13 .2 % 5 .6 % 16 .8 % 2 3 .4 % 5 .6 % 4 .3 % 15 .1% 2 4 .6 % 3 .3 % 2 7 .3 % 9 .4 % 13 .2 %

Distre sse d Me rge r Arbitra ge

Re la tive Va lue

Equity Long/Short

Globa l Equitie s

Me rge r Arbitra ge

Globa l Equitie s

Equity Long/Short

Re la tive Va lue

Equity Long/Short

Re la tive Va lue

Equity Long/Short

12 .1% 1.5 % 10 .6 % 14 .3 % 4 .7 % 3 .3 % 8 .5 % 13 .3 % - 0 .4 % 13 .7 % 5 .2 % 8 .0 %

Re la tive Va lue

Re la tive Va lue Distre sse d Distre sse d Re la tive

Va lueRe la tive

Va lueRe la tive

Va lueHFRI

CompositeEq. Ma rke t

Ne utra lHFRI

CompositeEquity

Long/Short Distre sse d

11.4 % 0 .1% 10 .1% 14 .0 % 4 .0 % - 0 .3 % 7 .7 % 8 .6 % - 1.0 % 10 .4 % 4 .7 % 6 .6 %

Equity Long/Short Distre sse d Equity

Long/ShortHFRI

CompositeEq. Ma rke t

Ne utra lEquity

Long/ShortEquity

Long/ShortGloba l Bonds

Globa l Bonds

Re la tive Va lue Distre sse d HFRI

Composite

10 .5 % - 1.8 % 7 .4 % 9 .1% 3 .1% - 1.0 % 5 .5 % 7 .4 % - 1.2 % 7 .4 % 4 .5 % 5 .5 %

HFRI Composite

Eq. Ma rke t Ne utra l

HFRI Composite

Re la tive Va lue

HFRI Composite

HFRI Composite

HFRI Composite Distre sse d Distre sse d Globa l

BondsHFRI

CompositeGloba l Bonds

10 .2 % - 2 .1% 6 .4 % 7 .1% 3 .0 % - 1.1% 5 .4 % 6 .3 % - 1.7 % 6 .8 % 4 .0 % 5 .1%

Globa l Ma c ro

Globa l Ma c ro

Globa l Bonds


Equity Long/Short

Globa l Ma c ro

Me rge r Arbitra ge

Re la tive Va lue

Globa l Ma c ro

Me rge r Arbitra ge

Me rge r Arbitra ge

Re la tive Va lue

8 .1% - 4 .2 % 4 .3 % 6 .5 % 1.8 % - 1.3 % 3 .6 % 5 .1% - 4 .1% 6 .8 % 3 .6 % 3 .8 %

Globa l Bonds

HFRI Composite


Me rge r Arbitra ge

Me rge r Arbitra ge

Globa l Equitie s



HFRI Composite

Globa l Ma c ro


Globa l Ma c ro

5 .5 % - 5 .3 % 3 .0 % 4 .7 % 1.7 % - 1.8 % 2 .2 % 4 .9 % - 4 .7 % 6 .5 % 2 .6 % 3 .7 %

Me rge r Arbitra ge

Globa l Equitie s

Me rge r Arbitra ge

Globa l Ma c ro

Globa l Bonds

Globa l Bonds

Globa l Bonds

Me rge r Arbitra ge

Equity Long/Short Distre sse d

Globa l Bonds


4 .6 % - 6 .9 % 2 .8 % - 0 .4 % 0 .6 % - 3 .2 % 2 .1% 4 .3 % - 7 .1% 2 .9 % 2 .5 % 2 .7 %


Equity Long/Short

Globa l Ma c ro

Globa l Bonds Distre sse d Distre sse d

Globa l Ma c ro

Globa l Ma c ro

Globa l Equitie s


Globa l Ma c ro

Me rge r Arbitra ge

2 .9 % - 8 .4 % - 0 .1% - 2 .6 % - 1.4 % - 8 .1% 1.0 % 2 .2 % - 8 .9 % 2 .3 % 1.3 % 2 .3 %

2010-2019

Hedge fund strategy returns

Source: MSCI, Bloomberg Barclays, HFRI, FactSet, J.P. Morgan Asset Management. Global equities reflect the MSCI AC World Index and global bonds reflect the Bloomberg Barclays Global Aggregate Index. All hedge fund returns are from HFRI. HFRI Composite: HFRI FW Composite Index. Returns may fluctuate as hedge fund reporting occurs on a lag. Please see disclosure pages for index definitions.Data is based on availability as of February 29, 2020.

Hed

ge fu

nds

39

40


-5%

0%

5%

10%

15%

20%

All hedge funds Fixed incomerelative value

Equity marketneutral

Event driven Relative valuetotal

Relative valuemulti-strategy

Macro total Equity hedge Emergingmarkets

Hedge funds and manager selection

Hedge fund manager dispersionBased on returns from 4Q 2009 – 4Q 2019

Sources: HFRI, J.P. Morgan Asset Management. Manager dispersion is based on: 4Q 2009 to 4Q 2019 monthly returns for hedge funds. Blue bar denotes median. All hedge funds: Fund Weighted Composite Index, Equity market neutral: Equity hedge – equity market neutral, Event-driven: Event-Driven (Total), Relative value: Relative Value (Total), Relative value multi-strategy: Relative Value Multi-Strategy, Macro total: Macro (Total), Equity hedge: Equity Hedge (Total), Emerging markets: Emerging Markets Global. Data is based on availability as of February 29, 2020.

40

Hed

ge fu

nds

Med.

13.2%

-0.8%

3.5%

11.5%

-0.8% -0.7%

8.7%

1.2%

13.0%

2.4%

12.5%

1.6%

10.5%

-3.9%

9.7%

15.1%

-0.7%

11.6%Top quartile

Bottom quartile

41

Guide to Alternatives |Hedge fund flows

Hedge fund net asset flowBillions USD

Sources: HFRI, J.P. Morgan Asset Management. Data is based on availability as of February 29, 2020.

41

Hed

ge fu

nds

-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

2019:-$43.1bn

42


Global data sizeZettabytes

Computing power: transistors per microprocessorLog

Hedge fund exposures

Sources: FactSet, Our World in Data, IDC, J.P. Morgan Asset Management. Zettabyte is a measure of digital information storage. One zettabyte is equivalent to a billion terabytes. Data is based on availability as of February 29, 2020.

Sector exposure of top 50 hedge funds% of total portfolio

42

Hed

ge fu

nds

1.E+031.E+04

1.E+05

1.E+061.E+07

1.E+08

1.E+091.E+10

1.E+11

'71 '76 '81 '86 '91 '96 '01 '06 '11 '16

0

10

20

30

40

50

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

Size of global data

15.6%

13.2%12.9%

8.8%

7.4% 7.2%

4.9%4.0% 3.7%

2.6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

43


-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Hedge funds and traditional portfolios

Sources: HFRI, Standard & Poor’s, Bloomberg, Barclays, FactSet, J.P. Morgan Asset Management.*60/40 portfolio is 60% S&P 500 and 40% Bloomberg Barclays U.S. Aggregate. Hedge funds are represented by HFRI Macro.Data is based on availability as of February 29, 2020.

Hedge fund correlation with a 60/40 stock-bond portfolio*1990 – present, monthly

Hed

ge fu

nds

43

9/11, Post tech-bubble recession

Tech bubble

Global financial crisis

Eurozone double-dip

Energy weakness, dollar strength

Government shutdown(s)Early 1990’s

Recession/ Fed

tightening concerns

44


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0

10

20

30

40

50

60

70

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Source: HFRI, CBOE, MSCI, FactSet, J.P. Morgan Asset Management.Historical beta is based on regression analysis, where the HFRI is the dependent variable and the MSCI AC World Index is the independent variable. Monthly VIX reading is an average. Numbers may not sum to 100% due to rounding. Data is based on availability as of February 29, 2020.

Hedge funds and volatility

Hedge funds and volatilityAverage monthly hedge fund returns by VIX level, 1990 - present

Hed

ge fu

nds

Macro hedge fund relative performance & volatilityVIX index level, y/y change in rel. perf. of HFRI Macro index

VIX

Macro hedge fund relative performance to HFRI

BetaAlpha

44

0.5%0.3% 0.3%

-0.2%

-0.8%-0.6%

0.6%

0.6% 0.7%

0.1%

0.0%

-0.3%

1.1%

0.9%1.0%

0.0%

-0.8%-0.9%-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

10-15 15-20 20-25 25-30 30-35 >35

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J.P. Morgan Asset Management – DefinitionsAlpha – Is the difference between an investment’s return and its expected return, given its level of beta.Accredited investor – Defined by Rule 501 of Regulation D, an individual (i.e. non-corporate) "accredited investor" is either a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase OR a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. For the complete definition of accredited investor, see the SEC website. Capital commitment – A Limited Partner’s obligation to provide a specific amount of capital to a Closed-end Fund (defined below) for investments. The Capital Commitment is “drawn down” or “called” over time, meaning a portion of the commitment must be wired to the Closed-end Fund by a set date. Capital called – The amount of capital wired to a fund that is “drawn down” over time as the General Partner selects investments. Carried interest (aka incentive fee) – A fee paid to a fund manager for generating returns over a benchmark; calculated as a percentage of investment profits over a hurdle rate and charged in addition to a management fee. In Private Equity, carried interest (typically up to 20% of the profits) becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate. Catch-up – This is a common term of the private equity partnership agreement. Once the general partner provides its limited partners with their preferred return, if any, it then typically enters a catch-up period in which it receives the majority or all of the profits until the agreed upon profit-split, as determined by the carried interest, is reached. Clawback – A clawback obligation represents the general partner's promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. Generally, this means that the general partner may not keep distributions representing more than a specified percentage (e.g., 20%) of the fund's cumulative profits, if any. When triggered, the clawback will require that the general partner return to the fund's limited partners an amount equal to what is determined to be "excess" distributions. Closed-end fund – A fund that has a finite capital raising period and stated term (i.e. 5 years, 10 years, etc.). Clients will have the ability to commit to the fund during the set fundraising period, after which point the fund will be closed to new investors. Unlike an open-ended fund, there is limited flexibility on when a client may invest and there is no liquidity/redemptions. Clients who invest are obligated to remain in the fund for the duration of the term; they will be required to fulfill capital calls during the stated commitment period and will receive periodic distributions based on underlying monetization of investments. Commitment period – The period of time within which the fund can make investments as established in the Limited Partnership Agreement (“LPA”), meaning the governing document, for the fund. Direct co-investment – An investment made directly in a single underlying asset of a fund. Example: The General Partner elects to invest in an operating company alongside a fund. Dispersion – Difference between the best-performing and worst-performing strategies.Distressed – A financial instrument in a company that is near or is currently going through bankruptcy. This usually results from a company's inability to meet its financial obligations. As a result, these financial instruments have suffered a substantial reduction in value. Distressed securities can include common and preferred shares, bank debt, trade claims (goods owed) and corporate bonds. Distributions – The total proceeds distributed by the fund to the Limited Partners, which may include both return of capital and gain distributions.General partner – The managing partner of a Limited Partnership. The General Partner is managed by the asset management team responsible for making fund investments (i.e., the intermediary between investors with capital and businesses seeking capital to grow).Gross IRR – The dollar-weighted internal rate of return, before management fees and carried interest generated by the fund.

Hedge Fund strategies:Relative Value/Arbitrage involves the simultaneous purchase and sale of similar securities to exploit pricing differentials. Strategies in this sector offer potential to generate consistent returns while minimizing directional risk.Opportunistic/Macro strategies involve investments in a wide variety of strategies and instruments, which often have a directional stance based on the manager’s global macroeconomic views. Long/Short (L/S) Equity involves long and/or short positions in equity securities deemed to be under- or overvalued, respectively. Exposures to sectors, geographies, and market capitalizations are often flexible and will change over time. Merger Arbitrage/Event Driven strategies invest in opportunities created by significant corporate transactions and events which tend to alter a company’s financial structure or operating strategy. Distressed Securities invests in debt and equity securities of firms in reorganization or bankruptcy.

High watermark – The highest peak in value that an investment fund has reached. This term is often used in the context of fund manager compensation. For example, a $1,000,000 investment is made in year 1 and the fund declines by 50%, leaving $500,000 in the fund. In year 2, the fund returns 100%, bringing the investment value back to $1,000,000. If a fund has a high watermark, it will not take incentive fees on the return in year 2, since the investment has never grown. The fund will only take incentive fees if the investment grows above the initial level of $1,000,000. Hurdle rate – The rate of return that the fund manager must meet before collecting incentive fees.Internal rate of return (IRR) – The dollar-weighted internal rate of return. This return considers the daily timing of cash flows and cumulative fair stated value, as of the end of the reported period. J-Curve effect – Occurs when funds experience negative returns for the first several years. This is a common experience, as the early years of the fund include capital drawdowns and an investment portfolio that has yet to mature. If the fund is well managed, it will eventually recover from its initial losses and the returns will form a J-curve: losses in the beginning dip down below the initial value, and later returns show profits above the initial level. K-1 – Tax document issued for an investment in partnership interests to report your share of income, deductions and credits. (Note that Private Investments generally issue a Schedule K-1 instead of a Form 1099 for tax reporting. K-1s may at times be issued later than 1099s, requiring investors to file for an extension).Limited partner – An investor in a Limited Partnership, which is a form of legal entity used for certain hedge funds, private equity funds and real estate funds. Management fee – Fee paid to a fund manager for managing the fund; typically calculated as a percentage of assets under management.Mezzanine finance – Loan finance that is half-way between equity and secured debt, either unsecured or with junior access to security. A mezzanine fund is a fund focusing on mezzanine financing. Multiple of Invested Capital (MOIC) – Calculation performed by adding the remaining (reported) value and the distributions received (cash out) and subsequently dividing that amount by the total capital contributed (cash in). Net asset value (NAV) – This is the current fair stated value for each of the investments, as reported by the administrator of the fund. Net IRR – The dollar-weighted internal rate of return, net of management fees and carried interest generated by the fund. This return considers the daily timing of all cash flows and the cumulative fair stated value, as of the end of the reported period.

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J.P. Morgan Asset Management – DefinitionsOpen-ended fund – As it relates to private alternatives (not mutual fund structure), an open-ended fund is a fund that has no stated term or maturity and allows clients to invest and redeem on an ongoing basis. The frequency of investments (aka subscriptions) and / or redemptions may vary. Redemptions from open-ended private alternative funds generally require advance notice in writing.Pari Passu – At an equal rate or pace, without preference. Portfolio company – A business entity that has secured at least one round of financing from one or more private equity funds. A company in which a given fund has invested. Post-money valuation – The valuation of a company immediately after the most recent round of financing. For example, a venture capitalist may invest $3.5 million in a company valued at $2 million “pre-money” (before the investment was made). As a result, the startup will have a post money valuation of $5.5 million. Pre-money valuation – The valuation of a company prior to a round of investment. This amount is determined by using various calculation methods, such as multiples to earnings or comparable to other private and/or public companies. Preferred return – Also known as Hurdle Rate. Private equity – Equity capital invested in a private company through a negotiated process. Primary investment – An investment made in a newly formed limited partnership. Real estate investment trust (REITs) – Stocks listed on an exchange that represent an interest in a pool of real estate properties.Realized value – The amount of capital extracted from an investment. Reported/remaining value – The current stated value for each of the investments in a fund, as reported by the General Partner of the fund. Return on equity (RoE) - Amount of net income returned as a percentage of shareholders' equity.Secondary market investment – The buying and selling of pre-existing investor commitments. Seed money – The first round of capital for a start-up business. Seed money usually takes the structure of a loan or an investment in preferred stock or convertible bonds, although sometimes it is common stock. Seed money provides startup companies with the capital required for their initial development and growth. Angel investors and early-stage venture capital funds often provide seed money. Tax documents – See K-1.Total value – The combination of market value and realized value of an investment. Shows the total worth of an investment. Unfunded commitment – Money that has been committed to an investment but not yet transferred to the General Partner. Venture capital – A specialized form of private equity, characterized chiefly by high-risk investment in new or young companies following a growth path in technology and other value-added sectors. Vintage year – The year of fund formation and first draw-down of capital. Write-down – A reduction in the value of an investment.

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J.P. Morgan Asset Management – Risks & disclosures

The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries toparticipate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current marketconditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investmentdecision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit andaccounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all availablerelevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxationagreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future resultsJ.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy.This communication is issued by the following entities: In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be.; in Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), which this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919). For all other markets in APAC, to intended recipients only.This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by Banco J.P. Morgan S.A.; in Canada for institutional clients’ use only by JPMorgan Asset Management (Canada) Inc., and in the United States by J.P. Morgan Institutional Investments, Inc. or JPMorgan Distribution Services, Inc., both are members of FINRA; J.P. Morgan Investment Management, Inc. or J.P. Morgan Alternative Asset Management, Inc. Copyright 2020 JPMorgan Chase & Co. All rights reserved.Unless otherwise stated, all data are as of February 29, 2020 or most recently available.

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