Kidding aside, if the reader takes nothing more away from this review of 2022 and look forward to 2023, it is this: there are very few years that result in truly fundamental changes in environment, but 2022 was one of them.

Thanks to much higher interest rates and changes in the inflation outlook, the geopolitical landscape and the growth environment globally, we have a quite different lens through which to focus our viewpoints. This is a good thing. As tough as 2022 was for financial assets, it has set up a very positive starting point in many ways for 2023.

What is our outlook?

While we do not see 2023 as being as bad as last year, U.S. equity markets are not screaming buys in terms of valuation. Instead, they are fairly valued versus long-term historical price/earnings levels. We expect there will be strong variation in company, industry and sector performance this year.

Non-U.S. valuations had a strong rebound in 2022 but are still below historical averages. Areas, like China, that were severely punished are still at low historical valuations (even discounting all the regulatory and political headwinds).

Private markets did better than public markets in 2022, thanks to the lag in valuation adjustments. That being said, there were downward revisions, and the outlook is more nuanced for 2023.

In real estate, fundamentals are strong for almost all property types (the exception being office), but a recession would lead to reduced demand, increased vacancies and lower rents.

Infrastructure was positive in 2022, and the outlook for that sector continues to be rosy.

Continued strength in areas of the private equity market, like middle market buyouts, and better valuations for purchases (particularly for add-on investments for existing holdings) is positive. Here, too, within each private equity subsector we expect dispersion in returns based on focus and experience.

We think investors can reap the benefits of diversification and performance based on quality and fundamentals, not just from a rising tide lifting all boats. With this backdrop, active management should perform well, and a focus on the experience and depth of resources in managers should be front and center.

What does our outlook cover?

The Q1 2023 Investment Outlook includes tables that provide a snapshot of our forward-looking observations on the direction of specific asset classes.

Specifically, for 24 asset classes, we select one of five outlook signals based on our 12–18-month perspective relative to our 10+-year CMAs. The signals range from an above-normal return outlook to a below-normal return outlook.

The asset classes include equities, fixed income and these alternatives:

• Hedge funds
• Multi-asset class strategies
• Private equity
• Real estate
• Infrastructure
• Commodities
• Energy
• Timber
• Farmland