A year to continue overcoming challenges and redefining limits. We will focus on building portfolios that can adapt to various scenarios.



Key Economic Themes for 2025



Looking ahead to 2025, we anticipate a soft landing for the U.S. economy. We assume the new administration will moderate its more aggressive tariff and immigration stance. Against this backdrop, here are some of our key economic views for 2025:



U.S. Growth and Policy Trade-offs



The U.S. economy is expected to grow at a trend-like rate of 2.0% in 2025, reflecting the lagged effects of the Federal Reserve's tightening monetary policy. The policies of the Trump administration require careful balancing. Tax reform and deregulation may stimulate economic growth, particularly in domestic and cyclical sectors. However, tariffs and immigration restrictions may trigger stagflationary shocks, which could lead the Fed to consider rate hikes in the face of economic weakness.



Global headwinds and policy divergences



Outside the U.S., growth is likely to remain under pressure. Trade policy uncertainty and tariffs will weigh heavily on Europe. China will face headwinds from U.S. tariffs, a weak real estate market, and deflationary pressures. Japan, however, is an exception, benefiting from a wage-price spiral, with inflation expectations anchored close to 2%.



Market Sentiment and Valuation



Elevated equity valuations make the U.S. market susceptible to negative surprises, while a further strengthening of the dollar will challenge emerging markets. Persistently high U.S. Treasury yields above 4.5% may challenge the equity market, undermining the yield advantage equities have enjoyed over bonds since 2002.



Key Investment Themes for 2025



As we move into 2025, the interplay between the evolving policy environment and changing market conditions requires us to exercise prudent asset allocation. Based on the macroeconomic backdrop—resilient U.S. economic growth, potential disruptions from trade and immigration policies, emerging opportunities from AI-driven productivity gains, and growth in private markets—we have adopted three strategic themes:



U.S. Growth Policy Adjustments Balance



The U.S. economy remains resilient as we enter 2025, but the road ahead will be shaped by changing policy dynamics.





Asset Class Impacts:


  • Equities

    We focus on U.S. small-cap stocks, where post-election dynamics, improving earnings, and attractive valuations may create appealing opportunities. Meanwhile, growth-oriented fund managers are eyeing high-growth cyclical stocks like software, while value-oriented fund managers find M&A potential in financials and healthcare. Core fund managers balance cyclical exposure and manage interest rate-sensitive sector risks.
    Additionally, we expect that U.S. foreign policy actions will lead to increased market volatility, creating opportunities for active managers to seek high-quality companies temporarily impacted by headline risks.

  • Fixed Income

    We see the steepening yield curve providing opportunities for short-term bonds, as short-term rates are expected to fall faster than long-term yields. Due to spread tightening, the credit market may lack upside potential, especially in U.S. high-yield and investment-grade bonds. This creates opportunities to expand fixed income exposure into more attractive risk/return trade-off areas, such as emerging market dollar bonds and private credit.

  • Currencies

    The U.S. is expected to face upward pressure due to tariffs, a strong U.S. economy, and the Federal Reserve being less dovish than other central banks. However, its valuations remain high, and emerging market currencies are already under pressure. In light of this, we will keep our currency bets limited in 2025 while closely monitoring potential opportunities and risks throughout the year.



Private Markets: New Engines of Growth



Private markets continue to play an increasingly important role in the evolving landscape of capital flows, as the significance of public markets diminishes with a reduction in IPOs and late-stage listings.




Market Impact:


  • Private Equity

    We focus on private equity opportunities in the European mid-market and continue to drive growth in Japan and the Gulf countries. Managers with industry-specific expertise outperform generalists, and we believe portfolios can benefit from this trend.

  • AI and Technology

    We believe that AI private market projects, particularly those scaling innovative technologies across industries, will continue to be key drivers of long-term growth. We are actively seeking to invest in AI-driven companies that are expected to enhance productivity and reshape industries.

  • Private Credit

    We view private credit as a resilient asset class, especially in the current high-interest rate environment. Asset-based lending and European direct lending offer attractive relative value, and we are expanding our fixed income exposure into these areas to capture higher yields and better diversification.

  • Infrastructure

    We are optimistic about infrastructure as a long-term growth anchor and a hedge against inflation. This asset class has shown strong resilience in recent market volatility and benefits from long-term trends such as energy transition, renewable energy, and digitalization. The demand for sustainable and digital infrastructure continues to grow, driving significant capital inflows. Furthermore, a blended model combining private and public market exposure is unlocking new growth potential.

  • Venture Capital

    We see significant opportunities in AI-driven venture capital (VC), particularly in early-stage companies that have the potential to reshape industries. As the VC market stabilizes, we focus on companies with strong fundamentals, innovative track records, and the ability to scale effectively.





Expansion of market leadership



Despite large AI stocks driving market returns in recent years, leadership is shifting to companies using AI to create real efficiencies. The new U.S. administration's focus on reducing regulation and tariff-based policies may provide extra momentum for smaller, domestically-focused companies, which are less affected by international trade disruptions than larger stocks with substantial overseas revenues (like Apple). We see this shift reducing market concentration and opening doors for alpha opportunities.


Market Impact:


  • Equities

    Active equity fund managers have recently faced challenges from severe market concentration. Our research shows that even if these trends stabilize—which may be driven by a shift in policy, changes in outlook for large-cap earnings growth and valuations—it still helps active fund managers' performance. We and our active fund managers focus on industries accelerating AI adoption, such as industrials, healthcare, and consumer goods. We believe that companies leveraging AI to enhance productivity are well-positioned to gain lasting competitive advantages and generate strong returns. Capable active fund managers can seek out these companies, especially in less-covered areas of the market.

  • Real Assets

    We see investment opportunities in real estate and infrastructure, particularly in areas benefiting from long-term stable interest rates and favorable relative valuations compared to other growth assets. AI applications in real estate, such as data centers and healthcare facilities, are becoming key growth areas. Additionally, infrastructure investments in energy utilities and pipeline exposure are accelerating due to the U.S. government's expansion of LNG production.