2022 has been a historic year in many ways. Still recovering from post-pandemic supply/demand imbalances, the global landscape shifted dramatically in February when Russia invaded Ukraine. Accelerating global inflation followed, spurring aggressive shifts in central bank policy. The U.S. Federal Reserve has raised interest rates this year at a faster pace than any time in recorded history. Markets for both stocks and bonds are set to deliver double digit negative returns in a calendar year for the first time since the major indices were formed.

Looking at the data, one might conclude this was an unusual year for markets. Taking a step back, we argue that while the pace and magnitude of the events of 2022 were historic, the market environment over the previous decade was more unusual.

In this letter, Pathstone’s Chief Investment Office will examine the outlook for markets and the economy and how investors should think about the navigating a bumpy road back to a more “normal” environment of elevated interest rates, credit spreads, and subdued equity valuations. We will offer our insights on how the macro environment unveils opportunities and risks across liquid and private markets that we have not seen in the prior 13+ years of artificially low interest rates. While we believe there will be further bumps and twists in the road in 2023, successful long-term investors will be prepared to look out for on-ramps to the highway where opportunities for smoother returns will emerge.

—Alex Hart, CFA, Executive Managing Director, Chief Investment Office

Table of Contents

• Investment Strategy Without Training Wheels
• Global Equities – Tuning Up for a Road Trip
• Alternatives – A Regime Shift from Macro to Micro
• Private Markets – Private Investments Dampen Shocks
• Portfolio Management Strategies – Autopilot Not Ready Yet

Pathstone is pleased to kick off a new interview series with some of the passionate and committed asset managers who head our recommended investment strategies. By offering a look behind the curtain of key strategies our team has implemented for client portfolios, we aim to share the depth and breadth of expertise and collaboration that goes into our investment process.

Our inaugural conversation features Alex Paulsen, the founder of Kilihune Research LLC. Alex has served as Portfolio Manager to the Pathstone Closed-End Fund (CEF) strategies for more than nine years. We have had the pleasure of working with Alex through major market events that have had significant impact on our use of CEF strategies. Alex was interviewed by Joseph Koch, CFA, Senior Analyst within the Investment Research team.

November was a strong month for overall market performance. Inflation data came in better than expected and investors jumped on the news, hoping for a Fed pivot in the near future. Both equities and bonds soared and the U.S. dollar weakened. International equities were the ultimate beneficiary and Chinese equities had their best monthly performance in years. Payrolls for November were strong and unemployed remained unchanged. Fed Chair Jay Powell continued to temper expectations and while the pace of rate hikes may slow, this does not mean a pivot in policy.