The Paper Trail: Store of Value

Memorial Day Weekend is behind us, which means summer has (un)officially begun! 

Let's be real - nobody would consider the content I share here "beach reading" material. But hopefully some combination of summer vacations, kids away at camp, or a slightly less busy work schedule over the next few months allows you to chip away at that giant pile of investment research you've been meaning to get to...

Now, please enjoy the May 2025 edition of The Paper Trail. This month's research roundup features:

• The case for store-of-value assets
• Enhancing Treasuries with merger arbitrage
• Fixed income outside of "the Agg"
• Private equity eating the small-cap premium 
• The many faces of growth investing
• Evergreen PE funds
• Public and private credit convergence
• Investor behavior in stocks and bonds
• Base rates for drawdowns and recoveries of individual stocks
• Equity investing amid trade wars
• Forecasted private markets growth
• Private credit mythbusting

Are store-of-value assets - gold and bitcoin - critical components of a strategic asset allocation framework?

"Store-of-value assets—valued for monetary rather than industrial use—capture shifts in global monetary systems that equities, bonds, and other commodities only implicitly reflect. As a standalone choice, store-of-value assets provide a nominal anchor to diversify portfolios, hedge against systemic change, and enhance portfolios by stabilizing risk-adjusted returns through a separate allocation."

Capital Market Assumptions: The Case for Store of Value (Coinbase Asset Management)

Is merger arbitrage a better pair for U.S. Treasuries than corporate credit risk?

"These results underscore that merger arbitrage is a distinct and diversifying return stream, not merely a proxy for credit risk. It offers a path to improve fixed income returns without loading up on equity beta or economic cyclicality."

Boosting Bonds: Stacking Merger Arbitrage to Enhance Fixed Income Portfolios (Return Stacked Portfolio Solutions)

Has the bond market outgrown "the Agg" index?

"In total, these excluded sectors in the U.S. alone account for an estimated $26 trillion, and more than $110 trillion globally. Clearly there is a whole universe of bonds not included in the Agg."

When the Market Outgrows the Index (TCW)

Is private equity responsible for the disappearing small-cap premium in public stocks?

"Many high-quality small-cap companies that traditionally pursued IPOs are increasingly opting to remain private. This shift may fundamentally alter where value creation occurs, with an argument that early-stage growth may be increasingly realized in the private sector rather than after a public listing. Historically, much of a company’s growth and value generation occurred after it went public, allowing retail investors to participate in its early success. Today, however, companies are staying private for longer, often until they are well-established and mature. For example, the average age of a technology company at IPO has risen to approximately 14 years, compared to just six years in 2000."

What Has Private Equity Done to Small-Cap Stocks? (Marquette Associates)

Is there a distinct growth factor premium?

"When growth is claimed to be an alpha factor, one may first want to determine the specific growth definition used and whether this aligns with one’s intuitive understanding of growth, or if a different label would perhaps be more appropriate. In this article, we find that growth may be defined as the opposite of value, a dimension of quality, or as business momentum, and depending on this preference the expected premium may be negative, flat, or positive."

The Many Faces of Growth (Robeco)

Are evergreen private equity funds structurally superior to drawdown funds?

"Fully funded from the start, an evergreen fund provides immediate exposure to a diversified PE portfolio, resulting in a compounding effect that can grow committed capital more significantly than a drawdown fund at equal rates of return."

The Compelling Case for an Allocation to Semi-Liquid Evergreen Private Equity (Morgan Stanley)

Are public and private credit converging?

"As private markets mature, understanding where they overlap with public credit will likely be crucial for investors. To help achieve true diversification across asset types, quality and liquidity, a simple strategy of making separate allocations to public and private credit will no longer suffice. Rather, investors may need to take a holistic view of credit markets and portfolios to identify opportunities and risks."

The Convergence of Public and Private Credit (PGIM)

Do bond investors behave differently than equity investors?

"Here’s the simplest story: Bond investors are used to thinking about market yields which are inherently forward-looking. The 10-year Treasury bond is not discussed in the media or among investors in terms of its price, say, 101^7/32, but in terms of its yield of 4.20%. In contrast, equity investors are more exposed to prices and recent realized returns, and past strength inspires expectations of more strength."

Why Are Bond Investors Contrarian While Equity Investors Extrapolate? (AQR)

How do individual stocks tend to perform following massive drawdowns?

"The median drawdown for the 6,500 stocks in our sample from 1985-2024 was 85 percent and took 2.5 years from peak to trough. More than one-half of all stocks never recover to their prior highs."

Drawdowns and Recoveries: Base Rates for Bottoms and Bounces (Counterpoint Global)

Which types of stocks are best positioned to successfully navigate a trade war?

"Rather than abandoning global exposure, investors should adapt by focusing on the global firms best positioned to withstand geopolitical shocks: those with lower reliance on China, diversified and localized supply chains, intangible-intensive business models, and non-U.S. domiciles."

Investing Amid Trade Wars (Sparkline Capital)

How much will private markets grow over the next five years?

"We forecast that global AUM held by GPs will reach $24.1 trillion by the end of 2029, up from nearly $19 trillion today. This growth reflects a base-case trajectory informed by long-term capital formation trends, returns, and evolving investor demand. While our estimated 5.2% annualized growth rate is slower than in previous cycles, it signals continued confidence in the durability and relevance of private capital strategies in institutional and individual portfolios alike."

2029 Private Market Horizons (PitchBook)

Are the criticisms of private credit misguided?

"We have shown that the opposition set up between private credit and banks is overly simplistic, that the asset class has a much longer history than some commentators suggest and there is little evidence to back up the claim that private credit poses a systemic risk to the global financial system. To the contrary, some private credit strategies such as SRTs serve as a tool for banks to manage their credit risk, while others, such as direct lending, provide capital to underserved corporate borrowers in a less levered structure and in vehicles that can provide better asset-liability matching compared to banks."

Private Credit: Dispelling the Myths (Man Group)