[PPT] - 2020 INVESTMENT OUTLOOK: AN ALTERNATIVE VIEW FEBRUARY 13, 2020 PowerPoint Presentation

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2020 INVESTMENT OUTLOOK: AN “ALTERNATIVE” VIEW

FEBRUARY 13, 2020

Michael G. Dow, CFA, CPA Chief Investment Officer Derek Newcomer, CFA, CAIA Director of Alternative Investment Research

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TABLE OF CONTENTS

Macro and Markets
Chicago Weather and Stock Market Returns
The Beacon Pointe Investment Process
Macro Outlook
Market Themes
Investment Solutions
What Can Alternative Investments Do for You?
Alternative Investment Research Process
Solutions: Addressing the Market Themes
Concluding Remarks

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CHICAGO WEATHER - BRRRRR

SOURCE: Beacon Pointe Advisors, time.com, National Weather Service

‐ 490

That’s MINUS 49. Degrees. Fahrenheit.

(Wind Chill, Not Air Temperature…)

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DOES CHICAGO WEATHER PREDICT STOCK MARKET RETURNS?

SOURCE: Beacon Pointe Advisors, time.com, National Weather Service 1 We analyze a variety of factors before determining our outlook for the stock market. Temperatures in Chicago is not really one of them.

Daily Temperature in Chicago, January 2020 Coldest Temperatures in Chicago Since 1871

Year Lowest Temperature Stock Market Return 1982 ‐25 and ‐26 22% 1983 ‐25 23% 1985 ‐23 and ‐27 32% 2019 ‐23 31%

“Lower Chicago Temperatures = Higher Equity Returns?” 1

Normal January Average = 23 degrees

Year Average January Temperature Stock Market Return 1931 32.0 ‐43% 1932 33.6 ‐8% 1990 33.9 ‐3% 2002 31.9 ‐22% 2020 36.0 ?

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BEACON POINTE INVESTMENT PROCESS

SOURCE: Beacon Pointe Advisors; As of February 12, 2020

Macroeconomic Forecasting Valuation and Asset Allocation Manager Research and Analysis

Investment

Themes

Financial Conditions + MonPol +  GDP/Recession Probabilities + Inflation + Capital Market Volatility Institutional Quality Due Diligence  “Best in Class” Investment Managers Capital Market Volatility + Long Term Cap Mkt Assumptions + Cyclical Valuation  Optimized Asset Allocation

The foundation of our process is research: macro, manager and asset allocation.

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INVESTMENT THEMES

SOURCE: Beacon Pointe Advisors

Low Public Equity Risk Premium Low Public Fixed Income Yields Higher Volatility in Public Markets

2020 Investment

Themes

HOW SHOULD WE INVEST IN THIS ENVIRONMENT?

The foundation of our process is research: macro, manager and asset allocation.

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REVIEW OF OUR 1Q2019 “PREDICTIONS”

SOURCE: Beacon Pointe Advisors

Fed to the Rescue No Recession in the U.S. No “No‐Deal Brexit” Slowing Global Growth Fed to the Rescue No Recession in the U.S. No “No‐Deal Brexit” Slowing Global Growth

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2020 MACROECONOMIC OUTLOOK

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INVESTMENT THEMES

SOURCE: Beacon Pointe Advisors

Low Public Equity Risk Premium Low Public Fixed Income Yields Higher Volatility in Public Markets

2020 Investment

Themes

HOW SHOULD WE INVEST IN THIS ENVIRONMENT? The foundation of our process is research: macro, manager and asset allocation.

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FINANCIAL CONDITIONS

SOURCE: Beacon Pointe Advisors

FINANCIAL CONDITIONS ARE “EASY” = BETTER OUTLOOK FOR THE ECONOMY

U.S. Financial Conditions

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FEDERAL RESERVE IS THE MOST IMPORTANT VARIABLE

SOURCE: Beacon Pointe Advisors

THE FEDERAL RESERVE HAS – ONCE AGAIN – COME TO THE RESCUE OF THE EQUITY MARKET

$4,500

500 1000 1500 2000 2500 3000 1,500 2,300 3,100 3,900 4,700 2009 2011 2013 2015 2017

Total Assets of the Federal Reserve Bank and S&P 500 Index (rhs), $ billions and Index level, 2008‐2018

Fed Total Assets, $billions S&P 500 Index

Fed Balance Sheet

$3,762 $4,146 3328

2200 2500 2800 3100 3400 3,500 3,800 4,100 4,400 Jan‐18 Jul‐18 Jan‐19 Jul‐19 Jan‐20

Total Assets of the Federal Reserve Bank, $ billions and S&P 500, level

Fed Total Assets (lhs) S&P 500 (rhs)

Federal Reserve balance sheet normalization.

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NO RECESSION IN THE U.S.

SOURCE: Beacon Pointe Advisors

WE DO NOT SEE A RECESSION IN THE FIRST HALF OF 2020

U.S. GDP Probability of Recession

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BEACON POINTE RECESSION INDICATORS

SOURCE: Beacon Pointe Advisors

MOST LEADING INDICATORS ARE IN “OK” TERRITORY, BUT THERE ARE SOME WORRYING SIGNS…

Jan-1 9 Feb-1 9 M ar-1 9 Apr-1 9 M ay-1 9 Jun-1 9 Jul-1 9 Aug-1 9 Sep-1 9 Oct-1 9 Nov-1 9 Dec-1 9 Jan-20

0 . 8 6 0 . 2 2 ( 0 . 1 0 ) ( 0 . 1 0 ) ( 0 . 4 1 ) ( 0 . 1 0 ) ( 0 . 7 3 ) ( 0 . 7 3 ) ( 0 . 7 3 ) ( 1 . 0 5 ) ( 1 . 0 5 ) ( 1 . 0 5 ) ( 1 . 0 5 ) Average Workweek 1 . 0 7 1 . 1 2 1 . 2 2 1 . 2 3 1 . 2 1 . 1 1 1 . 2 4 1 . 1 8 1 . 2 3 1 . 2 1 . 1 7 0 . 9 7 0 . 9 7 Initial Jobless Claims 0 . 2 5 0 . 1 2 ( 0 . 7 9 ) ( 1 . 2 5 ) ( 0 . 8 4 ) 0 . 7 1 1 . 3 8 1 . 4 1 ( 0 . 0 8 ) ( 0 . 7 6 ) ( 0 . 8 7 ) ( 0 . 4 9 ) 0 . 1 9 Manufct New Orders 3m MA 0 . 1 1 ( 0 . 2 7 ) ( 0 . 1 5 ) ( 0 . 6 3 ) ( 0 . 7 5 ) ( 1 . 1 5 ) ( 1 . 0 3 ) ( 1 . 7 2 ) ( 1 . 5 4 ) ( 1 . 4 6 ) ( 1 . 8 8 ) ( 1 . 7 2 ) ( 1 . 7 2 ) ISM New Orders ( 0 . 8 8 ) ( 0 . 3 5 ) 0 . 3 ( 0 . 3 7 ) ( 0 . 4 1 ) ( 0 . 2 2 ) 0 . 1 1 ( 0 . 1 9 ) ( 0 . 6 6 ) ( 0 . 2 7 ) 0 . 0 2 0 . 2 4 ( 0 . 1 1 ) ISM New Orders Non‐defense 3m MA 0 . 0 8 ( 0 . 8 7 ) ( 0 . 9 2 ) ( 0 . 6 4 ) ( 0 . 1 9 ) ( 1 . 0 0 ) ( 0 . 0 2 ) 1 . 1 4 1 . 6 2 1 . 3 2 0 . 1 9 ( 0 . 0 6 ) ( 0 . 8 0 ) Building Permits 3m MA ( 1 . 8 6 ) ( 0 . 3 3 ) 1 . 2 9 1 . 7 3 0 . 1 6 0 . 0 5 0 . 0 7 ( 0 . 2 6 ) 0 . 0 8 ( 0 . 6 9 ) 0 . 8 8 0 . 7 5 0 . 7 8 LEI Stock Prices 3m MA 0 . 3 ( 0 . 3 2 ) ( 0 . 4 7 ) ( 1 . 6 3 ) ( 1 . 0 3 ) ( 1 . 7 1 ) ( 1 . 2 9 ) 0 . 2 3 ( 0 . 4 0 ) 0 . 1 8 ( 0 . 4 2 ) ( 0 . 4 7 ) ( 0 . 4 7 ) LEI Leading Credit Index ( 1 . 5 8 ) ( 1 . 6 1 ) ( 1 . 7 4 ) ( 1 . 8 0 ) ( 1 . 9 1 ) ( 2 . 2 6 ) ( 2 . 2 9 ) ( 2 . 4 7 ) ( 2 . 2 9 ) ( 2 . 0 5 ) ( 1 . 6 3 ) ( 1 . 5 8 ) ( 1 . 5 8 ) LEI Yield Curve Spread ( 0 . 5 7 ) 0 . 6 6 0 . 8 0 . 8 6 1 . 4 0 . 5 4 1 . 3 7 0 . 5 4 0 . 2 3 0 . 3 0 . 5 2 0 . 9 2 0 . 9 2 LEI Consumer Expectations 1 . 5 3 ( 0 . 1 0 ) ( 0 . 4 3 ) ( 0 . 6 2 ) ( 0 . 7 3 ) 0 . 3 ( 0 . 3 7 ) ( 0 . 1 8 ) 0 . 3 5 ( 0 . 1 6 ) ( 0 . 7 1 ) ( 0 . 8 2 ) ( 0 . 6 1 ) VIX Index 0 . 8 7 1 . 2 1 . 3 3 1 . 4 2 1 . 6 1 . 2 8 1 . 6 1 . 6 6 1 . 5 7 1 . 6 5 1 . 7 5 1 . 9 3 2 . 0 7 SPX 3m MA ( 0 . 9 1 ) ( 0 . 8 4 ) ( 0 . 9 1 ) ( 1 . 0 5 ) ( 1 . 0 7 ) ( 1 . 1 0 ) ( 0 . 9 1 ) ( 1 . 1 9 ) ( 1 . 2 4 ) ( 1 . 2 9 ) ( 1 . 0 5 ) ( 1 . 1 6 ) ( 0 . 9 4 ) USD Trade Weighted ( 0 . 4 0 ) 0 . 3 6 0 . 5 7 0 . 6 3 0 . 8 7 0 . 3 6 0 . 7 5 0 . 9 6 0 . 6 0 . 7 5 0 . 9 1 . 0 5 1 . 4 2 US IG Corp Spread ( 0 . 3 9 ) 0 . 4 9 0 . 8 6 0 . 7 6 1 . 0 4 0 . 4 1 0 . 8 8 0 . 9 3 0 . 7 5 0 . 9 2 0 . 7 5 0 . 9 4 1 . 2 3 US HY Corp Spread 0 . 7 1 0 . 9 4 0 . 5 2 0 . 5 9 0 . 2 7 1 . 2 6 0 . 9 6 1 . 1 3 1 . 7 2 0 . 9 8 0 . 9 3 ( 1 . 1 2 ) ( 0 . 9 1 ) UST 10yr 3m MA 0 . 0 4 0 . 0 5 0 . 1 3 0 . 2 9 0 . 3 2 0 . 3 5 0 . 3 3 0 . 6 2 0 . 7 2 0 . 9 9 1 . 0 9 1 . 0 0 0 . 7 5 US Fed Funds 3m MA

More Recent Data 

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2020 MARKET THEMES

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PUBLIC MARKET EQUITY RISK PREMIUM

SOURCE: Beacon Pointe Advisors

THE PUBLIC MARKET EQUITY RISK PREMIUM IS HISTORICALLY LOW

Low Public Equity Risk Premium

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PUBLIC MARKET BOND PREMIUM

SOURCE: Beacon Pointe Advisors

U.S. INTEREST RATES ARE NEAR MULTI‐CENTURY LOWS…

1.67 13.98

4.82 ‐ 2.00 4.00 6.00 8.00 10.00 12.00 14.00

1790 1805 1820 1835 1850 1865 1880 1895 1910 1925 1940 1955 1970 1985 2000 2015

US Treasury 10yr Yield ‐ 1790 ‐ present

US 10y UST 10yr Yield 229yr Avg

1.36 3.24

1.65

2.32 1.25 1.75 2.25 2.75 3.25

Feb‐15 Feb‐16 Feb‐17 Feb‐18 Feb‐19

UST 10y Yield ‐ 2015‐present

UST 10y Yield 5yr Avg Low Public Fixed Income Yields

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GLOBAL FIXED INCOME – CURRENT YIELDS

SOURCE: Bloomberg LLC

Emerging Mkt Sovereign Turkey 10‐year Sovereign Debt U.S. High Yield Corporate

Yields > 5.0%

U.S. Core Bond U.S. Treasury 30yr Bond

Yields 2.0‐3.0%

Japan 10yr Bond Swiss 10yr Bond

Yields < 0.00%

Yields >

5.0%

Yields

2.0‐3.0%

Yields <

0.00% Municipal Bond Yield

Low Public Fixed Income Yields

U.S. Investment Grade Corporate U.S. Treasury 10yr Inflation Bond

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CAPITAL MARKET VOLATILITY

SOURCE: Beacon Pointe Advisors

10 20 30 40 50 60 70 2006 2008 2010 2012 2014 2016 2018

Global Capital Market Volatility 2004‐present

Great Financial Crisis 1Q18:"Fed Freakout" 3Q15: China Currency Vol 2Q10: "Flash Crash" 4Q11: EuroZone (LTRO) 2Q13: "Taper Tantrum"

The Beacon Pointe Capital Market Volatility Index is constructed from the price volatilities of: 1) U.S. Equities 2) U.S. Interest Rates 3) Chinese Equities 4) Chinese Currency 5) U.S. High Yield Credit Spreads 6) EM Corporate Debt Spreads 7) Commodities 8) the U.S. Dollar Index

10 12 14 16 18 20 22 24 26 28 Jun‐17 Dec‐17 Jun‐18 Dec‐18 Jun‐19 Dec‐19 Global Capital Market Volatility

The growing realization that global monetary conditions are tightening and we are nearing the end of the cycle... 1Q18: The Fed comes to the rescue. Trump Administration escalates Trade Wars. Fed playing "catch up". 2H19: The Fed comes to the

rescue. Again

CAPITAL MARKET VOLATILITY IS INCREASING

Higher Volatility in Public Markets

Capital Market Volatility

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THEME SUMMARY

SOURCE: Beacon Pointe Advisors

Low Public Equity Risk Premium Low Public Fixed Income Yields Higher Volatility in Public Markets

HOW SHOULD WE INVEST IN THIS ENVIRONMENT?

The foundation of our process is research: macro, manager and asset allocation.

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LONG TERM MARKET ASSUMPTIONS

SOURCE: JP Morgan, Beacon Pointe Advisors

4.7 5.2 5.7 5.4

4.0 5.0 6.0 PCS 60/40 PCS 70/30 PCS 60/20/20 PCS 60/25/15

Private Client Long Term Expected Portfolio Returns Using Various Portfolio Asset Allocations

60/25/15 = 4% Private Equity + 3% each Private Credit, HF Long Bias, +2.5% each Priv RE Core, Priv RE Value Add 60/20/20 = 5% each Private Equity, Private Credit, HF Long Bias + 2.5% each Priv RE Core, Priv RE Value Add

2.3 2.8 4.8 5.5 7.0 7.2 7.7 8.5 8.8

1.0 3.0 5.0 7.0 9.0

Long Term Return Forecasts by Asset Class “Traditional ” Asset Classes “Traditional” Asset Classes ONLY Portfolios with Alternatives Alternatives Global Stocks

CLIENT OUTCOMES ARE ENHANCED BY ADDING ALTERNATIVE INVESTMENTS

Forward‐looing statements contained herein are merely speculative and does not relate strictly to historical or current facts. Such information is based on our current assumptions. Forward‐looking statements are subject to risk and uncertainties. Actual outcomes could differ materially from those presented above. These statements are not guarantees of future performance and should not be construed or relied upon as an investment recommendation or investment advice.

Forecasted Portfolio Returns

Returns shown do not reflect the deduction of management fees or any other fees and miscellaneous custodian fees

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INVESTMENT SOLUTIONS

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TABLE OF CONTENTS

Macro and Markets
Chicago Weather and Stock Market Returns
The Beacon Pointe Investment Process
Macro Outlook
Market Themes
Investment Solutions
What Can Alternative Investments do for You?
Alternative Investment Research Process
Solutions: Addressing the Market Themes
Concluding Remarks

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WHAT CAN ALTERNATIVES DO FOR YOUR PORTFOLIO?

Alternative investments can improve the risk/reward profile of your investment portfolio. Alternative investments can provide:

Enhanced Returns Diversification Risk Reduction Inflation Protection

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LOOKING BACK - HISTORICAL RETURN

Alternative investments can improve the risk/reward profile of your investment portfolio. Alternative investments HAVE PROVIDED more return and greater risk‐adjusted returns.

Returns shown do not reflect the deduction of management fees or any other fees and miscellaneous custodian fees Past performance is not indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that future performance of any specific investment or investment strategy will be profitable, equal any corresponding indicated historical performance level(s) or suitable for your portfolio.

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LOOKING FORWARD - PROJECTED RETURNS

Alternative investments CAN PROVIDE more return going forward and greater risk‐adjusted returns.

Returns shown do not reflect the deduction of management fees or any other fees and miscellaneous custodian fees Past performance is not indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that future performance of any specific investment or investment strategy will be profitable, equal any corresponding indicated historical performance level(s) or suitable for your portfolio.

Alternative investments can improve the risk/reward profile of your investment portfolio.

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BEACON POINTE MANAGER RESEARCH PROCESS

Our process has been refined over decades, producing consistent manger selection results. Institutional‐quality manager research process:

Proven track record of sourcing managers that outperform public markets and their peer universe.
Provide clients unique access to institutional strategies.

Alternative investing requires a time‐tested process, experienced researchers and rigorous due diligence. Manager Sourcing Quantitative Analysis Qualitative Analysis Portfolio Analysis Product Evaluation Focus List

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PRIVATE EQUITY: HISTORICAL PERFORMANCE

SOURCE: Vital Knowledge, Beacon Pointe Advisors

Private Equity: investments in private businesses at attractive valuations.
PE seeks to add value with strategic, operational, and financial expertise.
Private Equity seeks long‐term absolute returns that outperform public benchmarks with lower volatility.

Limited public equity compensation  PRIVATE EQUITY

9.9% 15.7%

0% 5% 10% 15% 20%

Risk

1994‐2019

U.S. Private Equity U.S. Public Equity

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PRIVATE CREDIT: HISTORICAL PERFORMANCE

SOURCE: Vital Knowledge, Beacon Pointe Advisors

Private Credit: asset backed or cash flow lending to private businesses.
Private Credit focuses on senior secured loans with lower risk of loss.
Private Credit seeks long‐term absolute returns that outperform public benchmarks with lower volatility.

Low public fixed income yields  PRIVATE CREDIT

3.51 % 3.63 % 4.03 %

0.25% 1.25% 2.25% 3.25% 4.25% 3 years 5 years 10 years

Annualized Return Difference

U.S. Private Credit ‐ U.S. Public Credit

3.4% 10.0%

0% 3% 6% 9% 12%

Risk

1994‐2019

U.S. Private Credit U.S. Public Credit

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PUBLIC VS. PRIVATE CREDIT : CURRENT YIELDS

SOURCE: Vital Knowledge, Beacon Pointe Advisors

Public market yields are near all‐time lows.
Private Credit markets offer higher yields to compensate for complexity and liquidity premiums.
We expect these premiums to persist.

Low public fixed income yields  PRIVATE CREDIT

5.74% 5.01% 4.40% 2.78% 2.05% 1.59%

0% 5% 10% 15% 20%

EMD Sovereign U.S. High Yield EMD Corporate U.S. IG Corporate Global Credit U.S. Muni

Public Fixed Income Markets, Yield % 7.00% 8.00% 10.00% 15.00%

0% 5% 10% 15% 20% Corporate Lending 1 Real Estate Lending (Intermediate) Corporate Lending 2 Private Equity Lending

Private Credit Markets, Yield or IRR %

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HEDGED EQUITY – HISTORICAL BETA VS. MARKET

SOURCE: Vital Knowledge, Beacon Pointe Advisors

High capital market volatility  HEDGED EQUITY / STRUCTURED NOTES

Hedged Equity: a conservative equity solution that helps provide a measure of downside protection.
Smoother ride – investors are more likely to stay invested when the downside is managed.
The Hedged Equity exposure can improve a client’s risk profile.

52.6% 100.0 %

0% 40% 80% 120%

Down Capture

2003‐2019

Hedged Equity U.S. Public Equity

‐6.3% ‐21.9%

‐24% ‐18% ‐12% ‐6% 0%

Worst Quarter

2003‐2019

Hedged Equity U.S. Public Equity

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EQUITY LINKED STRUCTURED NOTES

SOURCE: Beacon Pointe Advisors

PROS: Enhanced upside participation through greater than “one‐to‐one” equity market participation combined

with buffered downside protection.

CONS: Illiquid, exposure to bank credit risk.

S&P 500 Return Structured Note Outcome

‐40.0% ‐29.5% ‐35.0% ‐23.5% ‐30.0% ‐17.6% ‐25.0% ‐11.8% ‐20.0% ‐5.9% ‐15.0% 0.0% ‐10.0% 0.0% ‐5.0% 0.0% 0.0% 0.0% Neutral 5.0% 15.0% 10.0% 30.0% 15.0% 30.0% 20.0% 30.0% 25.0% 30.0% 30.0% 30.0% 35.0% 30.0% 40.0% 30.0% 45.0% 30.0% 50.0% 30.0% Maximum Return Zone Better Upside versus the S&P 300% Participation Zone Downside Buffer

Upside 300% to cap Buffer 15% Max Return 30% Gearing 118% Terms of the Note

High capital market volatility  HEDGED EQUITY / STRUCTURED NOTES

BLUE LINE: Long Equity Payoff Diagram GREEN LINE: Structured Note “Option‐like” Payoff Diagram

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INVESTMENT CONCLUSIONS

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ASSET CLASS PREFERENCES

SOURCE: Bloomberg LLC; Data as of December 31, 2018

“CHEAP” “FAIR” “RICH”

H I G H E R C O N V I C T I O N

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QUESTIONS?

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APPENDIX

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JAN 2020 MACRO MEETING VOTING RESULTS

36 GDP HIGHER vs. prior outlook due to decrease in trade tensions/uncertainty and Fed

accommodation. Recovery expected

starting in 2Q20 heading into election. Inflation outlook broadly the same as last quarter, slightly HIGHER than consensus. Recession probabilities LOWER than last quarter and MUCH LOWER than consensus/NY Fed Model. Fed “on hold” for 2020, above consensus (Fed funds futures). Rate hikes forecasted in late‐2020 and 2021 if economy allows.

SOURCE: Beacon Pointe Advisors, Bloomberg LLC; As of January 11, 2020

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The information set forth herein is for the sole use of our clients and prospective clients, and only in connection with the purposes for which it is presented. By accepting delivery of the information, the intended recipient agrees that: a) the information set forth and the methodologies utilized herein are proprietary to Beacon Pointe, and b) no part hereof will be reproduced, reprinted, disseminated, displayed, or utilized for any reason other than the purposes expressed without the prior written consent of Beacon Pointe. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Information that has been obtained from outside sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. Beacon Pointe shall not be liable to customers or anyone else for the inaccuracy or non‐authenticity of the information or any errors of omission in content regardless of the cause of such inaccuracy, non‐authenticity, error, or omission, except to the extent arising from the sole gross negligence of Beacon Pointe. In no event shall Beacon Pointe be liable for consequential damages. Beacon Pointe Advisors does not offer legal or tax advice. Please consult with the appropriate tax or legal professional regarding your circumstances. This information is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice. Only a tax or legal professional may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement any design discussed herein. Nothing herein should be relied upon as personalized investment advice, nor should it be considered an individualized recommendation, offer or solicitation for the purchase or sale of any security or to adopt a specific investment strategy. An investor should consult with their financial professional before making any investment decisions. Investing in securities involves risks, and there is always a chance of losing money when you invest in securities. Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets. Past performance is not a guarantee of future results. Thank you for your continued confidence in Beacon Pointe.

IMPORTANT DISCLOSURES