Executive Summary

Global financial markets concluded the first quarter of 2024 on a broadly positive note. Equity markets advanced across most major regions as resilient economic activity, improving corporate earnings expectations and growing confidence that inflation could be brought under control without a severe global recession supported investor sentiment.

The rally broadened beyond the small group of large US technology companies that had dominated returns earlier in the year. Financials, industrials, energy companies, materials producers and selected smaller businesses participated more meaningfully during March. This broader market leadership encouraged investors who had previously been concerned about the concentration of equity-market gains.

US equities established additional record highs. The S&P 500 produced another strong monthly gain and completed its best first quarter since 2019. The Dow Jones Industrial Average also advanced, while the Nasdaq Composite rose more moderately as investors rotated towards economically sensitive and value-oriented sectors.

European markets performed strongly despite subdued regional growth. Expectations increased that the European Central Bank would begin reducing interest rates during the summer. UK equities also improved, supported by energy, mining and financial companies, while evidence emerged that the domestic economy was beginning to recover from the shallow recession recorded during the second half of 2023.

Japan experienced a historic monetary-policy change. The Bank of Japan ended its negative interest-rate policy, raised its short-term policy rate to a range of approximately 0%–0.1% and discontinued its formal yield-curve-control framework. The change followed stronger wage agreements and growing confidence that inflation could remain sustainably above the extremely low levels that had characterised much of Japan's recent history.

The Federal Reserve maintained its policy rate at 5.25%–5.50%. Although officials increased their projections for economic growth and inflation, the median forecast continued to imply three quarter-point rate reductions before the end of 2024. This reassured investors who had feared that persistent inflation might eliminate most of the anticipated easing.

Commodity markets strengthened. Oil prices rose as OPEC+ maintained production restraint and geopolitical tensions continued to affect supply expectations. Gold reached record levels, supported by central-bank purchases, expectations of future monetary easing and demand for defensive assets.

Digital assets remained highly volatile but produced substantial gains. Bitcoin exceeded its previous all-time high and traded above $73,000 before retreating. Continued inflows into US spot Bitcoin exchange-traded funds and anticipation of the April supply halving remained important sources of demand.

Key Themes During March

• Global equities advanced for a fifth consecutive month.
• The equity rally broadened beyond large US technology companies.
• The Federal Reserve retained its projection for three rate cuts during 2024.
• The Bank of Japan ended eight years of negative interest rates.
• The Swiss National Bank delivered an unexpected interest-rate reduction.
• Gold and Bitcoin reached new record highs.
• Oil prices increased amid production restraint and geopolitical uncertainty.
• Private-market participants reported improving confidence, although exits and fundraising remained challenging.

Global Economic Overview

The global economy remained more resilient than anticipated during March. The United States continued to expand at a healthy pace, labour markets remained comparatively strong and business surveys suggested that activity was stabilising in parts of Europe and the United Kingdom.

Inflation remained the principal challenge for central banks. Goods-price pressure had declined considerably, but housing costs, wages and labour-intensive services continued to produce elevated inflation in several economies. Policymakers therefore sought to prepare markets for eventual rate reductions without suggesting that the fight against inflation had been completed.

United States

US economic data continued to support the prospect of a soft landing. Employment growth remained strong, unemployment stayed low by historical standards and household spending continued to benefit from rising wages and accumulated savings.

Manufacturing remained less robust than the services economy, although surveys indicated that the prolonged industrial downturn was beginning to ease. Construction activity associated with semiconductor facilities, energy projects and government-supported infrastructure remained an important source of investment.

Inflation data released during the month remained firmer than investors had hoped. Both consumer and producer prices suggested that the decline towards the Federal Reserve's 2% objective could proceed unevenly. Housing and services remained important contributors, while goods inflation was considerably more subdued.

At its March meeting, the Federal Open Market Committee maintained the federal funds target range at 5.25%–5.50%. The updated Summary of Economic Projections showed stronger expected growth and slightly higher underlying inflation, but the median policy forecast continued to imply approximately three quarter-point cuts during 2024.

Federal Reserve Chair Jerome Powell emphasised that policymakers required additional confidence before reducing rates. However, he also indicated that temporary monthly inflation volatility would not necessarily prevent easing later in the year if the broader disinflationary trend remained intact.

Eurozone

The eurozone economy remained weak but displayed tentative signs of stabilisation. Manufacturing continued to contract, particularly in Germany, while service-sector activity improved. Lower energy costs and rising real household incomes offered the prospect of a gradual recovery later in the year.

Inflation continued to moderate, although services and wages remained under close observation. The European Central Bank kept its policy rates unchanged and reduced its inflation forecasts, strengthening expectations that the first reduction could occur in June.

Policymakers continued to stress that they required additional wage and profit-margin data before declaring that inflation was returning sustainably to target. The ECB sought to avoid committing unconditionally to a rate cut, but its communication became increasingly consistent with easing during the middle of the year.

United Kingdom

The UK economy showed signs of emerging from the shallow recession experienced during the second half of 2023. Business activity surveys improved, consumer confidence recovered modestly and retail conditions benefited from rising real wages.

Inflation declined more rapidly than expected, assisted by lower food and goods prices. Services inflation and wage growth remained elevated, but the overall direction encouraged investors to anticipate Bank of England rate reductions later in 2024.

The Bank of England maintained Bank Rate at 5.25%. Importantly, the two policymakers who had previously favoured an increase changed their votes, leaving no member supporting an immediate rate rise. One member continued to favour a reduction, while the majority preferred to wait for further evidence.

The change in voting pattern was interpreted as an important step towards future easing. Nevertheless, officials remained cautious because of the risk that domestic wage and service-sector pressure could prevent inflation from remaining at the 2% target.

Japan

Japan delivered the month's most important change in developed-market monetary policy. Following strong annual wage negotiations, the Bank of Japan concluded that the conditions required for a sustainable cycle of wage growth and inflation were increasingly present.

The central bank ended its negative interest-rate policy, discontinued formal yield-curve control and removed its commitment to purchase exchange-traded funds and property investment trusts. The overnight policy rate was guided to a range of approximately 0%–0.1%, representing Japan's first interest-rate increase in 17 years.

The change was historically significant but deliberately cautious. The Bank of Japan indicated that financial conditions would remain accommodative and continued purchasing government bonds. This prevented a sharp rise in yields and limited support for the yen.

Japan's annual wage negotiations produced the strongest average increases in more than three decades. Policymakers hoped that higher earnings would support household spending and allow companies to increase prices and wages in a sustainable manner.

Switzerland

The Swiss National Bank unexpectedly reduced its policy rate by 0.25 percentage points to 1.50%. It became the first major developed-market central bank to begin easing during the current cycle.

Swiss inflation had fallen comfortably within the central bank's target range, while the strength of the Swiss franc had reduced imported inflation and created pressure for exporting businesses. The decision demonstrated that monetary policy would not move uniformly across economies.

China

China's economy continued to generate mixed signals. Industrial production and exports showed periods of strength, but household demand, property activity and consumer confidence remained weak. Deflationary pressure continued to reflect insufficient domestic spending and excess capacity across selected industries.

The government announced a 2024 economic-growth target of approximately 5%. Achieving this objective was expected to require further fiscal, monetary and regulatory support given the continuing contraction within the property sector.

Authorities emphasised investment in advanced manufacturing, electric vehicles, renewable energy, semiconductors and other strategic industries. However, international concern increased that excess Chinese production capacity could intensify trade disputes with Europe and the United States.

Global Growth Outlook

The balance of risks improved during the first quarter. Recession appeared less likely in the United States, and activity indicators stabilised elsewhere. Falling inflation and eventual rate cuts could support consumption and investment during the second half of 2024.

Important risks remained. Persistent services inflation could delay monetary easing, while geopolitical conflict, high debt levels and renewed supply-chain disruption could revive price pressure. China's property correction and growing international trade friction represented additional threats to global growth.

Equity Markets

Global equity markets advanced during March, completing a strong first quarter. The most encouraging development was a broadening of performance beyond a limited number of large technology companies. Financials, industrials, energy businesses and selected smaller companies contributed more substantially to market returns.

United States

The S&P 500 gained approximately 3.1% during March and advanced by more than 10% during the first quarter. The index established a succession of record highs as investors responded positively to economic resilience and the Federal Reserve's continued expectation of rate reductions later in the year.

The Dow Jones Industrial Average rose by approximately 2.1%, while the Nasdaq Composite gained approximately 1.8%. The more moderate performance of the Nasdaq reflected a partial rotation away from the largest technology companies towards financial, industrial, energy and materials businesses.

Energy was among the month's strongest sectors as crude-oil prices increased. Financial companies benefited from a resilient economy, stable credit conditions and the prospect that the yield curve could become more favourable over time.

Industrial companies were supported by infrastructure expenditure, reshoring, defence demand and investment in data centres and semiconductor manufacturing. Materials producers benefited from higher commodity prices and expectations of improving global industrial activity.

Technology companies continued to produce positive returns, although performance varied more significantly than during January and February. Semiconductor businesses remained supported by artificial-intelligence demand, while some software companies faced scrutiny over valuations and the pace at which AI investment would generate revenue.

Small and mid-capitalisation shares improved as investors became more confident that the US economy could avoid recession. However, these businesses remained sensitive to borrowing costs and generally continued to trade below their previous relative valuations.

Europe

European equities advanced strongly and several major indices reached record highs. The STOXX Europe 600 benefited from financials, industrials, energy companies and selected consumer businesses.

The region's comparatively low valuations attracted investors seeking alternatives to expensive US growth shares. Expectations of an ECB rate cut during the summer also supported companies exposed to domestic European activity.

Germany's DAX reached new highs despite persistent weakness within the German economy. The index contains many multinational businesses that derive substantial revenue from outside Germany, limiting its dependence upon domestic conditions.

French equities also performed well, supported by luxury-goods, industrial and financial companies. Luxury businesses benefited from signs of stabilisation in selected Chinese consumer markets, although the strength of the recovery remained uncertain.

United Kingdom

UK equities advanced during March as energy, mining and financial businesses benefited from the broadening global rally. The FTSE 100 was supported by higher oil and metals prices, while the expectation of eventual rate reductions improved sentiment towards selected domestic businesses.

The FTSE 250 also produced gains as evidence emerged that the UK economy was beginning to recover. Smaller companies remained attractively valued relative to larger international peers, although liquidity and weak earnings growth continued to restrict investor enthusiasm.

Corporate takeover activity drew attention to the discount applied to UK-listed companies. International strategic buyers and private-equity firms continued to examine businesses whose public-market valuations appeared lower than comparable private-market values.

Japan

Japanese equities extended their strong performance. The Nikkei 225 rose above 40,000 for the first time during March and completed an exceptional first quarter.

The Bank of Japan's decision to end negative interest rates did not materially disrupt the equity rally. The policy change had been widely anticipated, and the central bank emphasised that monetary conditions would remain supportive.

A weak yen continued to benefit exporters, while corporate-governance reform encouraged dividends, share buybacks and the disposal of inefficient cross-shareholdings. Foreign investor demand remained strong.

The rally remained concentrated in large exporters, semiconductor businesses and companies improving shareholder returns. Domestic consumer businesses faced a more complex environment because currency weakness increased import costs and reduced household purchasing power.

China and Hong Kong

Chinese equities produced mixed but generally more stable performance after the sharp recovery recorded during February. Government intervention, state-backed purchases and expectations of further policy support reduced immediate selling pressure.

Investors remained cautious because of the property-sector downturn, weak consumer confidence and uncertainty surrounding corporate regulation. The 5% growth target was considered ambitious without substantial additional stimulus.

Technology and advanced-manufacturing companies benefited from policy support, while property developers and businesses dependent upon household confidence remained under pressure. Hong Kong-listed shares continued to trade at low valuations relative to many developed markets.

Asia-Pacific

Taiwanese and South Korean equities benefited from semiconductor and artificial-intelligence demand. Advanced memory, chip manufacturing and electronic-component businesses performed particularly well.

Australian shares advanced, supported by financials and resource companies. India remained one of the strongest structural growth markets, although elevated valuations and regulatory scrutiny encouraged periodic volatility.

Emerging Markets

Emerging-market performance remained uneven. Technology-oriented Asian markets performed strongly, while higher commodity prices supported selected Latin American producers.

A relatively firm dollar and elevated US yields remained challenges for countries dependent upon external financing. Investors continued to favour markets offering credible monetary policy, improving inflation trends and strong domestic growth.

Indicative March Performance

Fixed Income Markets

Fixed-income markets stabilised during March after the declines recorded in January and February. Government bonds generally produced modest positive returns as central banks indicated that interest-rate reductions remained likely during 2024.

US Treasuries

US Treasury yields fluctuated as investors balanced persistent inflation against the Federal Reserve's continued projection of three rate cuts. The benchmark 10-year yield remained close to 4.2% for much of the month and ended March only moderately changed.

Shorter-dated yields remained elevated because the exact timing of the first reduction was uncertain. Market expectations increasingly centred on June or later rather than the March start anticipated at the beginning of the year.

The Federal Reserve's updated economic projections indicated stronger growth and slightly higher inflation, but did not remove the prospect of easing. This supported longer-duration bonds after the March meeting.

Treasury-market volatility remained significant because relatively small changes in inflation or employment data could cause investors to revise the expected policy path. The large volume of government issuance also remained an important consideration for yields.

European Government Bonds

German Bunds benefited from expectations that the European Central Bank would begin reducing rates in June. Falling inflation and weak regional growth strengthened the argument for easing, although policymakers continued to request additional wage data.

Peripheral eurozone bonds remained well supported. Spreads between Italian and German government yields stayed comparatively contained, reflecting confidence that the ECB would manage the transition towards lower rates without creating renewed sovereign stress.

UK Gilts

UK government bonds strengthened as inflation declined and the Bank of England's voting pattern became less restrictive. The absence of any vote for an immediate rate rise was interpreted as evidence that the next policy move was likely to be downward.

Services inflation and wage growth remained potential obstacles, but markets brought forward expectations for easing as economic indicators improved only gradually.

Japanese Government Bonds

Japanese government-bond yields remained relatively stable despite the end of negative interest rates. The Bank of Japan continued purchasing government debt and communicated that financial conditions would remain accommodative.

The controlled market response demonstrated that the policy change was intended as a gradual normalisation rather than the beginning of an aggressive tightening cycle.

Investment-Grade Credit

Investment-grade corporate bonds produced positive returns as credit spreads remained tight and government yields stabilised. Investor demand continued to absorb substantial new issuance.

Large companies generally retained strong liquidity and access to capital. However, refinancing debt issued at extremely low rates continued to increase interest expense, particularly for businesses with significant maturities during 2025 and 2026.

High-Yield Credit

High-yield bonds benefited from strong equity markets and declining recession expectations. Credit spreads narrowed further, providing positive price returns in addition to elevated income.

The increasingly compressed level of spreads reduced compensation for future defaults. Investors remained selective towards lower-rated issuers, highly leveraged companies and businesses with limited ability to pass higher costs to customers.

Private Credit

Private credit continued to attract institutional capital. Floating-rate structures offered strong current income, while direct negotiations allowed lenders to tailor covenants and repayment schedules.

Competition among private lenders increased for high-quality borrowers. This created downward pressure on pricing and encouraged some lenders to offer greater flexibility.

Stress remained concentrated among borrowers financed at high leverage before the rise in base rates. Payment-in-kind interest, maturity extensions and sponsor equity injections became increasingly common methods of preserving liquidity.

Fixed-Income Considerations

• Government bonds offered significantly higher income than during the pre-2022 period.
• Duration remained sensitive to inflation surprises and changing rate expectations.
• Tight credit spreads reduced the margin of safety in lower-quality corporate debt.
• Refinancing risk remained more important than immediate default risk for many companies.
• Private credit offered attractive yields but required careful assessment of valuations and borrower liquidity.

Foreign Exchange

Foreign-exchange markets were influenced by differences in monetary policy and economic performance. The US dollar remained broadly firm, while the Japanese yen weakened despite the Bank of Japan's historic policy change.

US Dollar

The dollar traded within a relatively narrow range against a basket of major currencies. Strong US economic data and persistent inflation supported the currency, while the Federal Reserve's continued projection of rate cuts limited further appreciation.

The United States continued to offer higher interest rates and stronger growth than many other developed economies. These relative advantages maintained international demand for dollar-denominated assets.

Euro

The euro remained relatively stable against the dollar. Weak regional activity and expectations of a June ECB rate cut created downward pressure, while an improving trade balance and cautious central-bank communication provided support.

The currency outlook depended partly upon whether the Federal Reserve and European Central Bank began reducing rates at similar times. A substantially earlier ECB easing cycle could weaken the euro, while coordinated reductions might reduce volatility.

Sterling

Sterling was comparatively resilient as markets continued to expect that the Bank of England would proceed cautiously. UK interest rates remained high, while evidence of economic stabilisation reduced immediate recession concerns.

Faster-than-expected disinflation limited the currency's gains because it increased the probability of rate reductions later in the year.

Japanese Yen

The yen weakened despite the Bank of Japan ending negative interest rates. The policy change was widely anticipated and remained extremely modest compared with interest rates available in the United States and Europe.

The central bank's commitment to maintain accommodative conditions encouraged investors to continue using the yen as a funding currency. Japanese authorities expressed concern about rapid depreciation and increased speculation that direct currency intervention could eventually occur.

Swiss Franc

The Swiss franc weakened after the Swiss National Bank unexpectedly reduced interest rates. The central bank had previously expressed concern that currency strength was restricting inflation and creating difficulties for exporters.

Chinese Renminbi

The renminbi remained under pressure from lower domestic interest rates, property-sector weakness and capital outflows. Chinese authorities continued to manage the currency carefully to prevent rapid depreciation.

A weaker currency could support exports but risked encouraging additional capital outflows and increasing trade tensions. Policymakers therefore sought gradual adjustment rather than an aggressive devaluation.

Emerging-Market Currencies

Emerging-market currencies produced mixed returns. High-yielding currencies with improving inflation trends remained attractive, while those exposed to political uncertainty or weak external balances were more vulnerable.

Commodity-exporting currencies benefited selectively from stronger oil and metals prices. However, the persistence of high US interest rates continued to restrict capital flows towards some developing markets.

Key Currency Themes

• The timing and scale of central-bank rate reductions remained the dominant influence.
• The yen continued to weaken despite Japan's first rate increase in 17 years.
• The Swiss franc declined after the Swiss National Bank began easing.
• The dollar remained supported by superior US economic performance.
• Currency volatility created both risks and opportunities for international portfolios.

Commodities

Commodity markets strengthened during March as oil, gold and several industrial materials advanced. Supply restraint, geopolitical uncertainty, expectations of future monetary easing and tentative signs of improving manufacturing activity supported prices.

Oil and Energy

Crude-oil prices rose during March. Brent moved towards the mid-$80 range, while West Texas Intermediate traded above $80 per barrel.

OPEC and its partners extended voluntary production reductions into the second quarter. The decision supported prices by limiting near-term supply, although continued production growth from the United States and other non-OPEC countries remained an offsetting influence.

Geopolitical tensions in the Middle East and continuing attacks on Red Sea shipping maintained a risk premium. Commercial vessels continued to use longer routes around southern Africa, increasing transport times and costs.

Ukrainian attacks on Russian refining infrastructure also attracted attention. Disruption to refining capacity could affect exports of diesel and other products even where crude production remained available.

European natural-gas prices remained comparatively low because of high storage levels, mild weather and reduced industrial demand. The region entered the end of winter with a more comfortable inventory position than many analysts had anticipated.

Gold

Gold reached new record highs during March and traded above $2,200 per ounce. The increase occurred despite relatively firm US yields and the absence of immediate Federal Reserve rate cuts.

Demand was supported by central-bank purchases, geopolitical uncertainty and expectations that real interest rates would eventually decline. Buying from China and other emerging economies remained an important feature of the market.

The strength of gold suggested that investors were considering longer-term concerns including fiscal deficits, geopolitical fragmentation and the diversification of official reserves.

Silver and Platinum-Group Metals

Silver advanced but continued to lag gold over longer periods. Its price reflected both investment demand and expectations for industrial activity, particularly within solar-energy and electronics markets.

Platinum and palladium remained affected by uncertainty surrounding automotive demand and the transition from internal-combustion vehicles towards electric alternatives. Supply concentration in South Africa and Russia remained a potential source of volatility.

Industrial Metals

Copper strengthened as investors considered the possibility of improving global manufacturing activity and tighter future supply. Chinese smelters discussed production reductions because of exceptionally low processing fees, highlighting pressure within the refined-metal supply chain.

Long-term demand expectations remained supported by electricity-grid investment, renewable energy, electric vehicles and data-centre construction. However, the weak Chinese property sector continued to limit immediate demand.

Iron ore remained volatile as markets balanced Chinese infrastructure support against subdued residential construction. Lithium prices showed signs of stabilisation after a prolonged decline, although supply growth continued to exceed the rapid but moderating expansion of electric-vehicle demand.

Agricultural Commodities

Cocoa prices continued their extraordinary increase and reached additional record highs. Poor harvests in West Africa, crop disease and unfavourable weather created a severe shortage.

Coffee and sugar remained volatile as weather affected production expectations. Grain prices were generally more subdued because of ample supply and intense competition among exporters.

Commodity Overview

Digital Assets

Digital assets remained among the strongest-performing investments during March. Bitcoin exceeded its previous record and traded above $73,000 as spot exchange-traded fund inflows and anticipation of the April halving attracted additional capital.

Bitcoin

Bitcoin established a new all-time high during March, surpassing the peak recorded in November 2021. Importantly, the new record occurred before the scheduled supply halving, whereas previous record highs had generally followed halving events.

US spot Bitcoin ETFs continued to receive substantial inflows. The products allowed investors to obtain exposure through conventional brokerage and wealth-management platforms, increasing accessibility and reducing some of the operational complexity associated with direct ownership.

Demand was concentrated among a limited number of funds with low fees, substantial liquidity and established asset-management brands. Outflows from higher-fee legacy products continued but were frequently exceeded by investment into newer ETFs.

The price increase was accompanied by significant volatility. Bitcoin retreated sharply after exceeding $73,000 as leveraged positions were liquidated and investors secured profits. The correction demonstrated that institutional access had not eliminated the asset's speculative characteristics.

Bitcoin Halving

The approaching April halving remained an important market narrative. The event would reduce the mining reward from 6.25 Bitcoin to 3.125 Bitcoin per block, lowering the rate of new supply.

Investors debated the degree to which the event was already incorporated into prices. While lower issuance could be supportive where demand remained strong, previous performance did not guarantee that the historical post-halving pattern would be repeated.

Ethereum

Ethereum advanced during the month but underperformed Bitcoin during parts of the rally. Investors continued to assess the probability that US regulators would approve spot Ether ETFs.

The Ethereum network completed important technical upgrades intended to reduce the cost of transactions conducted through secondary scaling networks. Lower fees could support broader adoption of applications involving decentralised finance, gaming and tokenisation.

Alternative Digital Assets

Smaller digital assets experienced substantial speculative activity. Some networks benefited from improving transaction volumes, while meme-related tokens and other highly speculative assets produced extreme gains and losses.

The broad rally improved financing conditions for digital-asset businesses, but also increased concerns that speculative behaviour was returning before the industry had resolved governance and regulatory weaknesses exposed during the previous downturn.

Institutional and Regulatory Developments

Traditional financial institutions continued developing custody, tokenisation and blockchain-based settlement services. Interest remained strongest where distributed-ledger technology could improve efficiency without requiring exposure to volatile unbacked tokens.

Regulatory uncertainty persisted regarding the classification of digital assets, stablecoin reserves, decentralised platforms and staking services. Compliance requirements remained fragmented across jurisdictions.

Risk Considerations

• Rapid appreciation increased the probability of significant corrections.
• ETF flows could reverse during periods of weaker risk appetite.
• Leverage amplified short-term price movements.
• The halving could place financial pressure on less efficient miners.
• Regulatory treatment remained uncertain outside Bitcoin-based products.
• Cybersecurity and custody risks remained material despite institutional participation.

Private Equity

Private-equity conditions continued to improve gradually during March. Strong public markets, more accessible credit and reduced recession concerns encouraged sponsors to pursue transactions. Nevertheless, overall activity remained below historical averages, and the industry continued to face pressure to generate exits and distributions.

Deal Activity

Deal pipelines strengthened as buyers and sellers became more confident about economic conditions. Healthcare, software, business services, industrial technology, energy transition and digital infrastructure remained particularly active areas.

Mid-market transactions continued to prove easier to finance than the largest leveraged buyouts. Smaller deals required less debt and offered opportunities for specialist managers to create value through operational improvement and consolidation.

Public-to-private opportunities remained attractive where listed companies traded at substantial discounts to historical or international valuations. UK markets attracted particular interest from financial sponsors and strategic acquirers.

UK public merger-and-acquisition activity increased notably during March, with the number of announced firm and possible offers substantially higher than during the same period of 2023.

Financing Conditions

Leveraged-loan and high-yield markets became more receptive. Borrowers refinanced near-term maturities, reduced interest margins and amended debt structures as investor demand improved.

Competition between banks and private-credit funds increased for high-quality transactions. This provided sponsors with greater flexibility and improved pricing compared with the difficult conditions experienced during 2022 and early 2023.

Debt remained expensive relative to the pre-2022 period. Transactions therefore required larger equity contributions and lower leverage than had been common during the years of near-zero interest rates.

Valuation Environment

Rising public-equity markets helped improve valuation visibility. Sellers became more willing to enter discussions where comparable listed businesses had appreciated, while buyers gained greater confidence in potential exit values.

A gap nevertheless remained between premium assets and average-quality businesses. Companies offering recurring revenues, strong cash conversion and structural growth continued to attract high multiples. Businesses requiring substantial refinancing or exposed to cyclical demand faced discounts.

Exit Markets

Generating liquidity remained the industry's most important challenge. Limited partners continued to receive lower distributions than they had expected, restricting their ability to make new commitments.

Sponsors prepared portfolio companies for potential public offerings, but remained cautious about launching transactions before market conditions demonstrated sustained stability. Trade sales and secondary buyouts remained more practical exit routes for many businesses.

Continuation vehicles allowed managers to retain promising assets while offering liquidity to existing investors. These transactions continued to require careful governance because the sponsor often influenced both the selling and purchasing sides.

Fundraising

Fundraising remained concentrated among established managers. Investors prioritised firms with strong realised performance, sector specialisation and evidence of disciplined deployment.

Smaller and first-time funds faced longer fundraising periods and greater pressure to offer co-investment rights or reduced fees. Institutional investors continued to consolidate relationships with a smaller group of preferred managers.

Secondaries

The secondary market expanded as limited partners sought liquidity and portfolio rebalancing. Buyers demonstrated strong appetite for mature portfolios with identifiable near-term distributions.

Discounts varied according to asset quality, fund age and the credibility of reported valuations. Competition increased for high-quality portfolios, while older or underperforming funds required deeper discounts.

Private Credit

Private credit remained an essential source of acquisition finance. Direct lenders offered speed, execution certainty and flexible terms, enabling sponsors to complete transactions that might have been difficult to finance through syndicated markets.

However, increased competition encouraged some deterioration in lender protections. Investors monitored leverage, covenant quality, payment-in-kind interest and the treatment of distressed borrowers.

Operational Value Creation

Higher financing costs increased the importance of operational performance. Sponsors focused on pricing strategy, procurement, digitalisation, working-capital management and bolt-on acquisitions.

Artificial intelligence became an increasingly prominent value-creation theme. Portfolio companies explored automation within customer service, software development, data analysis, marketing and administrative processes. Successful implementation required measurable commercial benefits rather than simply adopting new technology.

CE Global Private Equity Observations

• Improving credit conditions supported a gradual recovery in transaction activity.
• Mid-market deals remained more accessible than the largest leveraged buyouts.
• Distributions and liquidity remained central concerns for limited partners.
• Public-to-private transactions offered opportunities where listed valuations remained discounted.
• Operational value creation was increasingly important in the absence of inexpensive leverage.
• Continuation vehicles and secondaries remained important liquidity tools.
• Artificial intelligence offered potential productivity benefits but required disciplined implementation.

Artificial Intelligence & Technology

Artificial intelligence remained a dominant investment theme during March, but market attention began to expand beyond the companies manufacturing advanced processors. Investors increasingly examined software, networking, power infrastructure and the potential commercial users of generative AI.

Semiconductors

Advanced semiconductor demand remained exceptionally strong. Cloud providers and technology companies continued to invest in graphics processors, networking equipment and high-bandwidth memory required to train and operate large AI models.

Semiconductor performance became more differentiated. Investors favoured companies occupying critical positions within the supply chain, while businesses lacking clear exposure to advanced computing generated weaker returns.

Manufacturing capacity, advanced packaging and memory supply remained potential constraints. The concentration of leading-edge chip production among a small number of Asian manufacturers continued to create strategic and geopolitical risk.

AI Software and Applications

Software providers accelerated the introduction of AI-enabled products. Applications included document creation, programming, customer service, sales analysis, cybersecurity and business intelligence.

Investors increasingly demanded evidence that these features could increase revenue, improve retention or reduce operating costs. The cost of providing generative-AI functionality remained significant because applications required substantial computing resources.

Companies possessing proprietary data and established distribution appeared better positioned than businesses relying entirely upon third-party models. Data quality, customer trust and integration with existing workflows became important competitive advantages.

Cloud Infrastructure

Major cloud providers continued to increase capital expenditure. Demand for AI computing reinforced the strategic importance of large-scale infrastructure, but raised questions regarding the period required to earn an acceptable return.

Cloud businesses benefited from the ability to distribute AI services to existing enterprise customers. However, competition intensified as customers sought to avoid dependence upon a single provider or model.

Power and Data-Centre Constraints

Electricity supply became one of the most important constraints upon AI development. Advanced computing facilities required substantially more power than conventional data centres, creating demand for grid connections, transformers, backup generation and cooling systems.

Technology companies entered long-term electricity agreements and examined investments in renewable energy, natural gas, energy storage and nuclear generation. Access to reliable low-carbon power became an increasingly important strategic consideration.

Cybersecurity

Generative AI improved the ability of attackers to create convincing phishing messages, automated malware and synthetic identities. Businesses consequently increased spending on identity management, data security and automated threat detection.

AI also improved defensive capabilities by allowing security systems to analyse large volumes of activity and identify unusual patterns. The sector remained attractive but highly competitive.

Regulation and Intellectual Property

Governments continued developing rules governing high-risk artificial-intelligence systems. Companies faced uncertainty concerning copyright, training data, privacy and liability for automated decisions.

Businesses increasingly adopted formal policies controlling employee use of generative-AI tools. These policies addressed confidential data, approved providers, human review and record keeping.

Technology Investment Risks

• High valuations assumed sustained and rapid earnings growth.
• Infrastructure investment could exceed near-term customer demand.
• Computing and electricity costs could reduce software margins.
• Regulatory and copyright disputes remained unresolved.
• Rapidly changing technology could weaken existing competitive advantages.
• Customer concentration remained significant across the semiconductor supply chain.

Sector Spotlight

Healthcare Innovation and Obesity Treatments

March's sector spotlight examines healthcare innovation, with particular attention to the rapidly growing market for obesity and diabetes treatments. New medicines demonstrated the potential to create substantial health benefits while reshaping pharmaceutical, medical-device, food and consumer markets.

Market Opportunity

Obesity affects a substantial proportion of the adult population across developed and emerging economies. It is associated with diabetes, cardiovascular disease, joint problems and numerous other medical conditions.

Historically, available pharmaceutical treatments produced limited weight loss or unacceptable side effects. A new generation of medicines based upon GLP-1 and related biological pathways demonstrated considerably stronger clinical results.

Demand expanded rapidly as doctors and patients became more familiar with the treatments. Manufacturers faced supply constraints and invested heavily in additional production capacity.

Pharmaceutical Leaders

A small number of large pharmaceutical companies established early leadership. Their competitive advantages included clinical data, manufacturing expertise, regulatory approvals and relationships with healthcare providers.

Competition remained intense. Other pharmaceutical and biotechnology businesses developed oral treatments, longer-lasting injections and therapies combining multiple biological mechanisms.

Manufacturing and Supply Chain

Producing injectable biological medicines required specialised facilities, sterile filling capacity and complex supply chains. Demand exceeded available capacity, creating opportunities for contract manufacturers and equipment suppliers.

Companies invested billions in new plants, but expanding production required time. Manufacturing quality and regulatory compliance remained essential because production failures could create shortages and reputational damage.

Insurance and Affordability

The long-term size of the market depended partly upon insurance coverage and government reimbursement. Treatment costs remained high, while many patients could require medication for extended periods.

Insurers assessed whether the reduction in future medical complications would offset the immediate cost of widespread treatment. Positive evidence concerning cardiovascular outcomes strengthened the argument for broader coverage.

Broader Economic Effects

Successful obesity treatment could affect industries beyond healthcare. Investors considered possible changes to food consumption, restaurants, alcohol, fitness, apparel and medical devices.

Some projected effects were likely to be overstated. Adoption would occur gradually, treatment responses varied and many patients could discontinue medication. Nevertheless, the potential impact justified attention across a wide range of sectors.

Private-Market Opportunities

• Contract pharmaceutical manufacturing
• Drug-delivery technology
• Clinical research organisations
• Diagnostic and patient-monitoring services
• Digital weight-management platforms
• Specialist healthcare distribution
• Cold-chain logistics
• Healthcare data and analytics

Principal Risks

High expectations were reflected in the valuations of leading companies. Clinical setbacks, safety concerns, competition or reimbursement restrictions could significantly affect future returns.

Long-term adherence remained uncertain. Patients could regain weight after discontinuing treatment, creating questions regarding cost, duration and the appropriate role of lifestyle intervention.

Supply limitations could restrict market growth, while the introduction of generic or competing medicines could eventually reduce pricing power.

Investment Perspective

Obesity treatment represented one of the largest potential pharmaceutical markets developed in recent decades. The opportunity extended beyond drug manufacturers to the infrastructure and services required to produce, distribute and monitor treatment.

Investment discipline remained essential. The most attractive opportunities were likely to be businesses with defensible technology, demonstrated clinical value and exposure to market growth without excessive dependence upon a single product.

Regulatory Update

Regulatory developments during March focused on artificial intelligence, climate disclosure, digital assets, competition and the governance of private markets. International businesses continued to face increasingly complex and sometimes conflicting requirements across jurisdictions.

Artificial Intelligence

European lawmakers approved a comprehensive artificial-intelligence framework intended to regulate systems according to their potential level of risk. The rules included obligations concerning transparency, data quality, human oversight and prohibited uses.

Businesses operating internationally began assessing which systems would fall within higher-risk categories. Financial services, recruitment, healthcare and critical infrastructure were likely to require particularly strong governance.

Companies were encouraged to create inventories of AI systems, identify responsible personnel and document how automated outputs were tested and reviewed.

Climate-Related Disclosure

US regulators adopted climate-related disclosure requirements for listed companies, although the final rules were narrower than originally proposed. Companies were expected to provide information concerning material climate risks and selected emissions where relevant.

The rules remained subject to legal challenge and political disagreement. Multinational businesses also faced separate European and international disclosure frameworks, increasing the importance of consistent data collection.

Digital Assets

Strong digital-asset markets increased regulatory attention. Authorities continued to distinguish between regulated exchange-traded products and the wider ecosystem of offshore platforms, alternative tokens and decentralised applications.

Stablecoin reserves, custody, market manipulation and the legal classification of tokens remained important unresolved matters. Financial institutions were expected to conduct due diligence even when using regulated intermediaries.

Private Funds

Private-fund managers continued preparing for increased transparency requirements covering fees, expenses, performance and conflicts of interest. Valuation practices remained an important area of scrutiny because limited transaction volumes reduced observable pricing.

General-partner-led secondary transactions and continuation vehicles required independent valuation, clear disclosure and procedures for managing conflicts.

Competition Policy

Competition authorities maintained close scrutiny of acquisitions involving technology, healthcare and data-intensive businesses. Transactions were increasingly assessed not only according to current market share, but also their potential effect on innovation and future competition.

Private-equity firms faced additional questions concerning ownership across related industries and the cumulative effect of multiple smaller acquisitions.

Operational Resilience and Cybersecurity

Financial institutions continued strengthening their response to cyberattacks, data loss and outages affecting important technology suppliers. Regulators increasingly expected firms to understand their dependence upon cloud providers and other third parties.

Artificial intelligence created additional security concerns, including synthetic identity fraud, automated phishing and accidental disclosure of confidential information.

Compliance Priorities

• Create an inventory of artificial-intelligence systems and their risk classifications.
• Document human oversight and testing of automated decisions.
• Prepare for differing climate-disclosure requirements across jurisdictions.
• Maintain transparent and consistent private-asset valuation procedures.
• Review conflicts associated with continuation funds and related transactions.
• Assess concentration risk among cloud and technology suppliers.
• Ensure investment communications do not exaggerate AI or sustainability capabilities.

Looking Ahead

Markets entered the second quarter with strong momentum. Global equities had advanced for five consecutive months, corporate earnings remained resilient and major central banks were moving closer to reducing interest rates.

The favourable environment was accompanied by increasingly demanding valuations. Further gains would require continued earnings growth, declining inflation and evidence that monetary easing could occur without a severe deterioration in economic activity.

Federal Reserve Policy

US inflation and employment data would remain the most important influences on global markets. Investors expected the Federal Reserve to begin reducing rates later in the year, but the timing remained uncertain.

Additional firm inflation readings could delay the first cut and increase bond yields. Conversely, a material weakening in employment could raise concern that policymakers had maintained restrictive conditions for too long.

European Central Bank

The European Central Bank appeared increasingly likely to begin easing in June. Investors would examine wage settlements, services inflation and lending activity for confirmation that price pressure was returning sustainably to target.

Lower rates could support European domestic demand, property markets and smaller companies. However, the strength of the recovery would also depend upon external demand and structural improvement within Germany.

Bank of England

UK inflation was expected to decline towards the Bank of England's 2% target during the spring, partly because of lower household energy costs. Policymakers would focus upon whether this decline could be sustained once temporary factors passed.

Wage growth and services inflation remained the most important barriers to easing. A rate reduction could support housing and consumer activity, but premature action risked reigniting price pressure.

Japan

Investors would assess the effects of Japan's first rate increase in 17 years. Attention would focus on wages, household spending, inflation and the yen.

Further yen weakness could increase the probability of currency intervention. However, the Bank of Japan was expected to normalise policy only gradually unless inflation accelerated significantly.

Corporate Earnings

First-quarter earnings season would test whether equity valuations remained justified. Technology companies would be expected to demonstrate continued demand for AI infrastructure, while economically sensitive businesses would need to confirm that global activity was improving.

Profit margins would remain an important consideration. Companies faced higher wages, borrowing costs and input prices, but many continued to benefit from pricing power and productivity improvements.

Commodities and Geopolitics

Oil markets would remain sensitive to OPEC+ policy, Middle Eastern conflict and disruption affecting Russia. A sustained increase in energy prices could slow disinflation and delay rate cuts.

Gold's record level reflected continued demand for diversification and defensive assets. Its performance would depend upon real interest rates, central-bank purchases and geopolitical developments.

Bitcoin Halving

The Bitcoin halving expected during April would reduce new supply and test whether strong ETF demand could continue. The event could also create pressure for miners with high costs or inefficient equipment.

After the rapid first-quarter rally, digital assets remained vulnerable to profit-taking, regulatory developments and the liquidation of leveraged positions.

Private-Market Outlook

Private-equity transaction activity was expected to improve gradually as financing became more available. Sponsors remained under pressure to realise investments and distribute capital, which could encourage additional exits.

Private credit and secondaries were expected to remain active. Refinancing needs, portfolio rebalancing and the demand for liquidity created opportunities for providers of flexible capital.

Investors were likely to remain selective. Businesses with recurring revenue, conservative leverage and strong cash generation appeared best positioned, while companies dependent upon repeated refinancing remained vulnerable.

Key Events and Indicators to Monitor

CE Global Private Equity Perspective

The first quarter demonstrated that financial markets could perform strongly even as expectations for interest-rate reductions were postponed. Resilient economic growth and improving corporate earnings proved more influential than the precise timing of monetary easing.

The broadening equity rally was encouraging, but valuations across several markets left less room for disappointment. Investment selection remained essential, particularly where enthusiasm surrounding artificial intelligence, digital assets or other rapidly growing themes had produced substantial price appreciation.

Within private markets, improving financing conditions offered the prospect of greater transaction and exit activity. However, the higher structural cost of capital continued to favour moderate leverage, reliable free cash flow and operationally focused ownership.

CE Global Private Equity believes that long-term opportunities remain available across digital infrastructure, healthcare innovation, advanced manufacturing, energy transition and specialist business services. Successful investment requires disciplined entry prices, detailed due diligence and a clearly defined route to sustainable value creation.

Liquidity management remains important. Although the economic outlook has improved, inflation, geopolitics and high debt-servicing costs continue to create the potential for renewed volatility. Diversification and conservative capital structures provide valuable protection against an uncertain policy environment.

This market review is provided for general information and discussion purposes only. It does not constitute investment, legal, tax or other professional advice, nor an offer or solicitation to purchase or sell any security, financial instrument or investment product. Market values can rise or fall, and past performance is not a reliable indicator of future results.