Investment managers and individuals are showing they’ve had enough with the stock market. Borrowing costs continue to go up, and cheap funds that ignited a formerly bull market have disappeared. When the world’s largest asset management firm is shunning the stock market for credit, individual investors probably need to start paying attention.
BlackRock Inc’s BLK Investment Institute has announced that it’s avoiding investing in most stocks in preparation for what the company believes is an increasingly likely recession caused by frequent rate hikes. Its assets under management were more than $10 trillion last year.
“Many central banks, like the Fed, are still solely focused on pressure to quickly get core inflation back to 2% without fully acknowledging how much economic pain it will take in a world shaped by production constraints,” BlackRock team leader Jean Boivin wrote in a note from the company. “We’re tactically underweight developed market stocks and prefer credit.”
As a result, private credit is back in fashion, with investors like BlackRock now becoming fans of diversifying portfolios with its strong cash yield and return potential. An asset class of privately negotiated loans and debt financing from non-bank lenders, private credit includes small business and consumer loans, venture capital debt and other private debt.
Several players have emerged, targeting individual investors who want private credit opportunities to balance portfolios in an unreliable stock market. Among those are:
Yieldstreet, founded in 2015 and owned by Michael Weisz, offers direct lending, asset purchases and participation in commercial and consumer loans from commercial banks, specialty finance companies, hedge funds, private investors, family offices and private equity. The company, with 400,000 users, promotes that it has effectively expanded investor access to private markets by creating funds with lower minimums and compelling theses that are distinct from opportunities available through more traditional channels.
Percent claims it gives investors exclusive access to the $7 trillion world of private credit investments, unlocking exclusive private credit investments for an investment portfolio. The company offers investors access to select alternative investments on its proprietary platform.
Atlanta-based Groundfloor was founded in 2013 by Brian Dally and Nick Bhargava. The company has 200,000 users and claims it's “on a mission to reformat and open private capital markets for the benefit of individual investors and the investments they fund.” The platform allows individuals to invest in real estate-backed loans with as little as $10. They have recently launched their annual campaign to raise growth capital for the company through a crowdfunded equity offering in partnership with Wefunder.
BlackRock’s ominous message comes after jarring losses in equity markets that have resulted in a selling streak, sending all three major stock averages into bear territory. In addition, central banks have joined the Fed in issuing rate increases to try and stall impending global inflation.
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