Mega-rich Americans are shifting their wealth away from stocks and bonds towards cash and alternative investments, driven by market volatility and inflation fears, with notable figures like Warren Buffett and Peter Thiel increasing cash reserves and diversifying their portfolios.
Investments in alternatives are projected to reach $32 trillion by 2030, driven mainly by wealthy investors such as ultra-high-net-worth individuals and family offices, with private equity and private credit expected to see significant growth amid a recovering market and AI boom, despite recent declines in institutional fundraising.
A survey finds that 45% of investors are interested in alternative investments like private equity, real estate, and cryptocurrencies, with ETFs being a popular and accessible way to gain exposure. Financial advisors suggest limiting such investments to a small portion of portfolios and emphasize that traditional stocks and bonds remain reliable for long-term growth, highlighting that 'boring investing still works.'
The Biden administration's new order aims to expand access to alternative investments like crypto and private equity in 401(k) plans, but experts warn of increased risks, higher fees, liquidity issues, and lack of transparency, raising concerns about the potential impact on retirement savings.
In the latest episode of Wealth!, host Brad Smith discusses the ADP Employment Report, which showed a slowdown in job creation, and its implications for the economy. The show also covers declining oil prices due to OPEC+'s production cuts, investment strategies in ETFs, and the upcoming Apple Worldwide Developers Conference (WWDC) with a focus on AI integration. Additionally, the episode explores alternative investments and the impact of tariffs on solar panel prices.
While Nvidia has seen significant growth, there are alternative investments in the technology sector that are expected to experience substantial earnings growth in the future, presenting opportunities for investors who may have missed out on the Nvidia boom.
The 60-40 portfolio, which allocates 60% to stocks and 40% to bonds, has made a comeback in 2023, delivering over 11% returns so far this year. However, despite its historical popularity, many financial advisors rarely use this strategy. The 60-40 portfolio is seen as a generic option that may not suit individual investors' specific needs and goals. Wealth managers often tailor portfolios based on factors such as age, income, risk tolerance, and investment objectives. While the 60-40 portfolio remains a solid starting point, professionals suggest spicing it up with alternative investments like private credit and municipal bonds to enhance returns and reduce risk.
Blackstone Inc, a manager of alternative investments, has become the first firm in its industry to reach $1 trillion in assets, achieving its goal three years ahead of schedule. However, the company's second-quarter distributable earnings dropped 39% due to a slump in asset sales. Blackstone's CEO, Stephen Schwarzman, remains optimistic about growth opportunities in private credit, insurance, infrastructure, the energy transition, life sciences, Asia, and wealth management. Despite its growth, Blackstone's size is dwarfed by BlackRock Inc, the world's largest asset manager. Blackstone's focus on alternative assets limits its customer base, but these investments are typically more lucrative. The company is also partnering with banks to expand lending areas.
Blackstone Inc, the alternative investment manager, reached a significant milestone by becoming the first firm to amass $1 trillion in assets, but its second-quarter distributable earnings dropped 39% due to a slump in asset sales. The decline in earnings was primarily driven by reduced net profits from asset sales in the real estate and credit divisions. However, the private-equity business saw a 20% growth in performance fees. Blackstone also reported a net income of $601.3 million under GAAP and declared a quarterly dividend of 79 cents per share.
Citigroup strategists have downgraded U.S. equities to neutral from overweight, citing concerns about a potential pullback in megacap growth stocks and U.S. recession risks. They recommend investors to consider alternative investments such as European stocks, which trade at a record discount to the U.S., and emerging markets equities. Citigroup also remains overweight on China and sees potential opportunities in basic resources, industrials, healthcare, media, technology, and telecoms. They caution against rushing into Japan stocks and highlight the importance of upcoming events such as consumer prices and the start of second-quarter earnings season.
Pimco's CIO, Daniel Ivascyn, warns of a high risk of recession due to the introduction of a debt ceiling standoff in a weak macro environment, regional bank weakness, and threat to dollar dominance. He sees opportunity in alternative investments.