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United States

Report | United States Investment Outlook - Q3 2016


​In the third quarter of 2016, financial markets remained unfazed by the Brexit vote that took place at the end of the second quarter. The S&P 500 averaged 2162.1, with a 6.1-percent return year-to-date. As investors attempted to come to terms with a muted reaction to Brexit, limited volatility continued to be the norm. As a result, volatility averaged a mere 13.2 on the CBOE Volatility Index (VIX), and financial markets began a rally to beat all-time highs, day-after-day. Markets continued to edge higher, closing at 2190.15 on August 15, an all-time high for the S&P 500 Index. Continued optimism in the short-term was fueled in large part by the quick rebound from the Brexit. With this, after having barely moved for 43 consecutive days this quarter, recurrent concerns related to global monetary policy, OPEC, the FOMC rate decision and, most recently, the Presidential election reemerged as areas of concern, causing markets to move and the VIX to increase modestly. 

Following quarterly declines in four of the five sectors and an overall year-to-date decline of 17.7 percent at mid-year, increased third quarter activity moderated volume declines at the close of the quarter. With three of the five sectors (hotels, office and industrial) rather seeing quarterly gains, year-to-date activity is now down 7.1 percent. A consistent theme across the hotels and office sectors remains the impact of offshore capital, despite overall foreign capital participation on U.S. acquisitions declining year-over-year.

In the wake of increased regulatory pressures for banks and CMBS lenders, alternative lenders continue to step in to fill the void. While overall fundraising year-to-date is down 17.9 percent, debt fundraising continues to lead the way with a 77.8 percent increase. With this, closed-end debt funds have raised a historic $14.5 billion and are on pace to see historic annual fundraising levels. Conversely, though opportunistic and value-add fundraising has grown in recent history, recent data suggests a slight slowdown. Opportunistic fundraising notably is down 45.3 percent year-to-date. As a result, whereas opportunistic capital comprised nearly 55.0 percent of funds raised at this point last year, debt funds have expanded from 13.3 to 18.8 percent of capital raised year-over-year. Closed-end core fundraising has been and remains constrained with those recently closed funds sector-focused and on the industrial and retail sectors, a divergence from more diversified strategies adopted by the opportunistic and value-add funds. Despite declining fundraising, liquidity in both the debt and equity markets remains strong, partially due to the amount of dry powder sitting on the sidelines. 

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