Last year, real estate transactions declined by 50%, while cap rates increased by 80 basis points. Many sellers were unwilling to let go of properties at lower prices, while buyers contended with a higher cost of capital and macroeconomic uncertainties. Another headwind was that many banks pulled back from lending due to balance sheet concerns, following the regional banking crisis.

This year, KKR is forecasting that real estate transactions will pick up, and there will be many opportunities for investors. Additionally, private real estate investors are well-positioned to step into the vacuum and provide financing for high-quality real estate at attractive terms. 

KKR notes some catalysts that should result in transaction volume increasing. The firm believes that real estate values are near a bottom especially as the Fed is at the end of its hiking cycle and looking to cut in the coming months. 

It also notes that REITs are a leading indicator for private real estate and have already embarked on a robust rally. Further, many real estate private equity funds have ample cash and have been on the sidelines for the last year and a half. Finally, many owners and operators will be forced to sell given that many loans are due to be refinanced in the coming years. In total, $1.6 trillion of real estate debt will be maturing in the next 3 years. 

Finsum: Over the last 18 months, activity in real estate has plummeted. KKR believes that we are close to a bottom. It sees attractive opportunities for private real estate investors especially given that many loans will need to be refinanced in the coming years in addition to an improvement in macroeconomic conditions.

Following the collapse of First Republic, many believed that there would be a negative impact on financial advisor recruiting. However, this concern was unfounded as more than 9,600 experienced advisors switched firms last year, which was a 7.5% increase from 2022 according to a report from Diamond Consultants. 

Jason Diamond, executive VP of Diamond Consultants, authored the report. He considers an experienced advisor to be one with a minimum of 3 years of experience. He believes that the healthy recruiting figures reflect that advisors are ‘taking a long-term view of the business in terms of what move will best position them for the next five years, not just today.” 

The two biggest moves were a team from UBS, managing $5.5 billion in assets, moving to RBC, and a private banking group at Bank of America, advising on $4.5 billion in client assets, joining Fidelis Capital, an independent wealth management practice. 

Most moves were within the same channel, such as wirehouse to wirehouse, even though many headlines focus on large teams going independent. For 2024, expectations are for another strong year of recruiting, although weakness in financial markets could lead to less activity. Many wealth management firms now offer multiple affiliation channels for incoming advisors. Additionally, private equity has also been getting more involved which has also pushed valuations higher. 

Finsum: Many thought that financial advisor recruiting would drop off in 2023 following the collapse of First Republic. However, this was incorrect as recruiting was up 7.5% compared to 2022. Expectations are that recruiting in 2024 should be strong as well.  

US Treasuries continue to move lower as hopes for a pivot in Fed policy are eroding. From the start of the year, the yield on the 10-year has climbed from 3.9% to above 4.3% to reach their highest levels since November. In total, it has retraced nearly half of the rally that began in October of last year. 

Over this period, the number of rate cuts expected in 2024 has declined from 6 to 3 as has the timing. Primarily, this is due to the economy remaining strong as evidenced by the labor market and inflation that has proven to be more entrenched than expected. All in all, the narrative has certainly changed as some now believe the Fed may actually hike rates further especially as there are indications that the steady decline in inflation has ended. 

Minutes from the last FOMC meeting also showed that committee members are concerned about the risk of inflation re-igniting if it begins to cut too soon. Overall, it remains ‘data-dependent’. However, all the recent data has undermined the case for immediate or aggressive cuts. According to Rich Familetti, CIO of US fixed income at SLC Management, the current Fed stance "is going to make it very hard for rates to fall much further from here… The pain trade is at higher rates and we will likely experience that."

Finsum: Treasuries continued their losing streak as higher interest rates have weighed on the entire fixed income complex. The market is now expecting 3 cuts in 2024 down from 6 at the start of the year.

2023 was a unique year as nearly every asset rallied due to positive news on inflation, an economy that remained resilient, and expectations that the Fed is ready to pivot on monetary policy. Looking ahead, 2024 is certainly going to be more challenging for equities and fixed income.

JPMorgan believes that investors should have exposure to private market as they offer steady returns and can increase diversification. The bank notes that private equity has outperformed public markets over multi-year periods regardless of economic conditions. The asset class has recently faced headwinds due to interest rates increasing the cost of capital. It recommends focusing on private equity funds that less leveraged and focused on higher-quality companies with durable growth characteristics.

While the monetary environment poses some challenges, it also creates opportunities for investors to lock in attractive yields in private credit. Commensurately, many banks have pulled back from lending, following the regional banking crisis, while public market debt issuance has also been constrained. Private credit has stepped into the vacuum to provide capital for these borrowers while also structuring loans to provide more protection in the event of a default. The bank notes attractive opportunities in commercial real estate, floating rate debt, and leveraged loans.

Finsum: JPMorgan anticipates more volatility and a more challenging environment in 2024 than last year. It sees upside in alternative investments to boost returns and diversification.

Bank of America CEO Brian Moynihan is looking to increase the profitability of the bank’s wealth management unit. He wants to achieve this by increasing scale, hiring more advisors, promoting more cross-selling of products, and investing in technology. 

In Q4, Bank of America had a net gain of 175 brokers with most of the growth coming from graduates of its training program. It ended the year with 18,916 advisors across all units which was a 2% decline from the end of 2023. The bank has also sought to stem the tide of defections over the past few years by upping compensation to match its competitors.

Moynihan wants to expand headcount and increase the bank’s presence in underserved markets. A key aspect of this is its revamped broker training which was integrated with Merril in 2021 and has increased retention rates of new advisors. 

Another element of the growth plan is to increase use of Bank of America financial products across its ecosystem. This means getting wealth management clients to use Bank of America financial products such as home loans or bank accounts, or private banking customers should be using Merrill for wealth management rather than an outside firm. He sees this as an opportunity to increase sales with minimal expense compared to other channels. 

Finsum: Bank of America CEO Brian Moynihan was positive on the wealth management unit’s performance. He sees future growth coming from adding advisors, investing in technology, and increasing cross-selling of products.