Alternatives
Bonds and equities are more correlated than ever and on top of that there isn’t any yield in the bond market these days due to the trillions in QE. Investors are now searching for an uncorrelated hedge to what looks like a looming equity bubble, and private credit markets are giving investors an alternative. High fees, opaque transactions, illiquid markets, and locked up finances are downsizing private credit but more companies are searching for financing partnerships in private markets. Middleman companies like Blackstone and Carlyle Tactical Private Credit can match companies in transactions that wouldn’t be possible in public markets and generate yield that wouldn’t normally be possible. In order to meet the rising demand private creditors are pitching to larger companies that could have access to the public bond market and giving persuasive pitches.
FINSUM: Private credit is the most enticing alternative to the volatile bond market.
Traditional crypto dominates headlines, and while regulations are an inevitability in the U.S.; stable coins are getting some attention from regulators as well. Stable coins are cryptos pegged predominantly the U.S. dollar, using assets like T-bills to back them as an underlying asset. They are used to trade other crypto currencies by many investors and have yields bringing in over 7%. However, the underlying assets backing stable coins are opaque and include commercial paper, loans, or swaps. The Biden admin is calling on Congress, and the Treasury if they fail to act, to regulate the industry because the fear of a run on stable coins is gowing. However, Wall Street views these regulations as a positive for the industry and legitimize stable coins. Mastercard, Visa, Western Union, Silvergate Capital and Signature bank could all benefit given how much they interact with stable coins.
FINSUM: Regulation is the best thing for stable coins, they get so many overseas investors who want hold dollar denominated assets, and this will calm fears of a run on the asset.
Fine wine’s track record of low volatility and low correlation to equity markets make it...See More
More...
Bitcoin is the most polarizing alternative investment by a wide margin and some say the slowing is natural, and the bull run is far from over. However, world leaders are singing a different tune. Swiss Bank Chair Alex Webber was the latest figure to speak out against the digital currency. While he showed appreciation for the underlying tech he said there was no chance that they would survive to upend the global payments structure. This was unwelcome commentary from bitcoin investors who saw prices fall severely in the last week. Additionally, China has targeted bitcoin again with shadow regulation and is the key driver in the price movements.
FINSUM: The biggest threat to bitcoin will always be regulation, particularly because its largest value as an asset class is currency conversion, particularly from developing nations.
Private equity firms are overwhelmingly turning to private credit as a buyout means over traditional bank financing. In a survey by Dechert law firm 45% of private equity firms have increased their use of private credit in buyouts in the last three years, which was a 10% increase from the previous year. Now private credit only trails real estate and private equity in private capital assets and is expected to grow to $1.46 trillion by 2025. It's a combination of a borrowing flexibility and yield chasing that has investors opening the doors to private credit. Private markets also seem less tumultuous to global volatility with longer contracts that are locked up and untradable. This is a big reason more than 50% of PE firms said its their preferred method to finance buyouts.
FINSUM: Ultra low yields and global instability are the biggest draws to private markets, because we know they are statistically less correlated with super liquid debt markets.
President Biden spoke at the Port in Baltimore to celebrate the passage of the $550 billion dollar spending bill which will allocate $17.1b to ports like the one he spoke at. In order to expedite the spending spree, the White House said that $240 million of the bill will be allocated to grants that they plan to move on in the next 45 days. The Biden administration sees port infrastructure spending as part of a key process to alleviate the supply constraints in the U.S. economy that are a key contributor to record inflation in many policy makers' eyes. The Bill is already facing criticism from former President Donald Trump who says only a fraction of the bill's allotment will be spent on infrastructure. However, it was 11 republicans who stepped across the aisle that was key to passing Biden’s first signature piece of infrastructure legislation.
FINSUM: It would be a big win for the U.S. economy if the infrastructure bill could make substantial gains toward reducing inflation which has markets flummoxed and consumers concerned.