Capital Market Analysis

Q2 Earnings from Public CRE Brokerages Signal a Market Turning Point Six major publicly traded brokerages just reported Q2 earnings... and the data is clear: capital markets activity is coming back, with debt leading the charge, leasing momentum improving, and investors sharpening focus on high-quality assets. Here’s the snapshot: - CBRE: Sales +20% (data centers, office, retail); record Q2 leasing +14%; EPS guidance raised - JLL: Capital markets +12%, leasing +5%; debt advisory driving growth - Cushman & Wakefield: Capital markets +27%, leasing +8%; improved debt availability, pricing corrections - Colliers: Capital markets +17%, leasing -5% (industrial tariffs hit; office leasing robust); 71% of earnings recurring - Newmark: Capital markets +37.9%, leasing +13.8%; $7.1B AI data center loan closed - Marcus & Millichap: Financing +43.5% (volume +86%), brokerage +4.4%; bid/ask narrowing in private client space Key themes driving transaction activity: - Debt-first recovery – lenders are back, unlocking price discovery - Selective leasing strength – office is showing life in key submarkets; industrial sentiment mixed - Recurring services as the anchor – facilities, project, and property management remain strong - Data center & AI infrastructure demand surging – big-ticket financings and sales in the pipeline - Bid/ask spread narrowing – particularly in private client deals - Sheds and Beds are a key focus for investors - investors are favoring the logistics and living sectors We’re not back to peak volume, but according to Q2 reporting the market is moving in the right direction. The combination of available debt, improved pricing clarity, and resilient service lines is creating a more liquid, more predictable environment for institutional capital deployment. #cre #capitalmarkets

Capital markets in Europe are signalling a structural pivot. IPO volumes rebounded sharply in 2024, rising nearly 80% year-on-year, yet still sit roughly one-third below the 2017–2019 average. The chart below illustrates this inflection point: IPO activity (light blue) is regaining ground, while Accelerated Bookbuild Offerings (ABOs) have normalised, reflecting resilient secondary market liquidity. This divergence highlights a bifurcated market—issuers are growing more confident, but investors remain selective, pricing risk with greater discipline. Looking ahead to 2025, the equity issuance calendar appears robust, supported by narrowing IPO discounts and renewed sponsor-led activity, with private equity-driven ECM rising nearly 50% last year. Equity risk premia are compressing as macro volatility recedes, and with follow-on activity already breaching $1 billion+ deal thresholds, the pipeline is building. We should expect a sequential acceleration in IPO volumes, with the UK poised for a late-cycle catch-up as political headwinds dissipate. The equity markets are open - the question isn’t if issuance will normalise, but how fast.

The capital markets are currently witnessing a massive migration. Institutional and retail investors alike are rushing into Private Credit and Private Equity, lured by a seductive promise: Equity-like returns with a fraction of the volatility. But as a mathematician, I have to ask: Is the risk actually lower, or is it just mathematically "camouflaged"? 1. The Sales Pitch: The Sharpe Ratio Trap On paper, Private Assets look like a miracle. Because they aren't traded on public exchanges, they don't bounce around with the daily "noise" of the S&P 500. This leads to a low standard deviation of returns, which, when plugged into a Sharpe Ratio calculation, makes these assets look like the most efficient risk-adjusted investments on the planet. But this isn't low volatility. It is Stale Pricing. 2. The Math: Autocorrelation & Return Smoothing In public markets, prices are a "Random Walk." In private markets, prices are often determined by appraisals that happen quarterly (or even less frequently). This creates high Serial Correlation (or Autocorrelation). If a fund manager reports a return this quarter, it is highly likely to be similar to the return from the last quarter, simply because the valuation process is anchored to the past. The Result: The reported volatility is "smoothed" by the appraisal lag. Mathematically, the true economic volatility is being suppressed by a factor related to the degree of autocorrelation in the reported series. 3. "De-Smoothing": Finding the True Risk To find the real risk, we have to "de-smooth" the data. When you apply econometric models to remove the lag (adjusting for the fact that these assets are often highly correlated with public markets), a startling truth emerges: 🔹 The "Miracle" Sharpe Ratio often collapses. 🔹 The True Volatility of Private Equity is often 2x to 3x higher than what is reported in the quarterly brochures. 🔹 The Correlation to public markets during a crisis is often much higher than investors realize (the "liquidity premium" is often just a "liquidity trap"). 4. Why This Matters for Portfolio Construction If you build a portfolio based on the reported volatility of private assets, you are likely over-leveraging and under-diversifying. You are effectively "shorting" transparency. In a regime shift or a high-rate environment, the "smoothing" doesn't protect you from the underlying economic reality—it just delays the recognition of it. The Takeaway: Don't confuse Liquidity with Stability. Just because an asset doesn't have a ticker tape doesn't mean its value isn't changing. If you want to understand your true risk, you have to look past the smoothed curves and account for the mathematical lag. Are you buying a lower-risk asset, or are you just buying a slower-moving clock? #QuantitativeFinance #PrivateCredit #PrivateEquity #RiskManagement #Mathematics #Volatility #CapitalMarkets #PortfolioConstruction #FinancialEngineering

This week we published an updated version of Capital Allocation: Results, Analysis, and Assessment. This is comprehensive study of how public companies in the U.S. spend money. We extend most of the analysis back to 1970, update the data through 2024, and discuss results for the first half of 2025 where practicable. We review capital allocation alternatives in detail, including a novel discussion of intangible investments, and offer a guide for thinking about the prospects for value creation. Looking at a more than a half-century of data reveals long-term trends, including the rise of intangible investments and share buybacks, and the fall of capital expenditures and dividends. We include a framework for assessing a company's capital allocation skills, which covers past behavior, calculating return on (incremental) invested capital, an evaluation of incentives, and five principles of effective capital allocation. Report available here: https://lnkd.in/euybNpuZ

Public markets appear to be shrinking, while private markets are where the growth is happening. The Committee on Capital Markets Regulation (CCMR) recently released a new report, Expanding Opportunities for U.S. Investors and Retirees: Private Markets. A timely analysis following the August 2025 executive order calling on regulators to expand access to alternative assets through 401(k)s and other retirement plans. Although the order covers alternative assets broadly, CCMR focuses on private markets, where the shift has already been dramatic. “Over the past two decades, U.S. companies have raised more equity through private offerings available only to institutional and high-net-worth investors than through IPOs available to the general public. The number of U.S. public companies has also been steadily declining, and private start ups are frequently reaching billion dollar valuations without opening up to public investors.” In short, most of America’s corporate growth now happens outside the public markets, and everyday investors are missing out. The report also supports expanding access to private credit, noting its growing role in financing the economy and the potential benefits it could add to diversified portfolios. CCMR structures their paper around four key areas: 1️⃣ The Growth of the Private Equity Market 2️⃣ The Investment Benefits of Private Equity Funds 3️⃣ Expanding Access Through Public Closed-End Funds 4️⃣ Expanding Access Through Retirement Accounts (401(k)s) In the first section, The Growth of the Private Equity Market, CCMR details how private equity assets have surged over the past two decades as the number of public listings declined. Institutional investors - pensions, endowments, and sovereign funds - have led the way, viewing private markets as essential for both returns and diversification. 💡 The takeaway: private markets will not be niche for much longer. They’re now where much of U.S. corporate value creation takes place, and policy momentum is building to give retirement investors a seat at the table.