Over the last few years, Wall Street banks have been losing market share to private lenders. Recently, they have been looking to win back business by serving as intermediaries between private lenders and companies. 

Previously, leveraged buyouts were financed by a combination of high-yield bonds and/or leveraged loans, arranged by a major bank or group of banks. And this accounted for nearly a third of investment banking revenue on Wall Street.

However, private lenders have muscled in on this line of business, forcing banks to adopt and come up with their own strategies to remain viable. Banks like Wells Fargo and Barclays have partnered with private credit funds to source deals, advise lenders, and help companies navigate the right steps to secure financing. 

Banks also have preexisting relationships with many privately held companies. According to Barclays, private credit funds have $430 billion in uninvested capital. Since the 2008 financial crisis, banks have had more stringent capital requirements. This means it is more desirable to advise and provide services to borrowers rather than take on additional balance sheet risk. 

It’s also helping Wall Street banks get through a dry period for deals due to high interest rates, impeding M&A activity. They are able to collect fees from lenders and borrowers. Typically, direct lenders will split fees with the banks that originate the deal, between 25 and 75 basis points. 

Finsum: As private lending has displaced a major chunk of Wall Street’s investment banking revenue, banks are adapting by serving as intermediaries for private lenders and borrowers.  

1. Rowe Price made an aggressive bet in 2020 by increasing exposure to equities in its target return funds, as equities were crashing due to the pandemic. At the time, the asset manager was criticized for this move; however, it’s paid off in spades, with the S&P 500 hitting new, all-time highs earlier this month. As a result of its success, T. Rowe Price now has the third-most assets in terms of target-date funds behind Fidelity and Vanguard. 

Further, T. Rowe Price has remained up to 98% invested in its target-date funds, which is higher than its peers. According to an analysis from Cerulli, retirees hold up to 55% of their portfolio in equities at T. Rowe Price. Compare this to Fidelity and Vanguard, where equity allocations are 38% and 30%, respectively. 

Despite its recent success, some continue to believe that T. Rowe Price’s target-date funds are taking on too much equity risk. According to Ron Surz, the president of Target Date Solutions, “80% of assets should be risk-free at retirement. Virtually all target date funds are way riskier than the theory they follow." However, some believe that higher allocations to equities are necessary given that lifespans are increasing, which increases the risk that retirees could outlive their savings. 

Finsum: T. Rowe Price is pursuing a more aggressive strategy than its peers when it comes to equity allocations in its target-date funds. So far, it’s worked well, but there are some skeptics.    

For investors, Tax Day often brings financial woes as they grapple with income from their portfolios. Over two decades, U.S. equity mutual funds have consistently yielded 7% of Net Asset Value in capital gains, irrespective of market performance. 

Direct Indexing emerges as a viable option, empowering investors to offset losses against gains within their portfolios or other income streams. Traditional portfolio management typically disregards tax implications, leading to hefty tax bills for investors, notably during market downturns like 2008.

Direct indexing offers a remedy, enabling investors to tailor their portfolios and strategically sell underperforming assets to counterbalance gains elsewhere. This method reduces turnover since the aim is to mirror an index with minimal trading. Even in bullish markets, avenues for loss mitigation exist, rendering direct indexing an attractive tax management strategy. By mirroring selected indexes, investors can curtail capital gains and potentially offset other income with net tax losses. 

Finsum: Alpha and tax efficiency should be thought of in a similar lens and shouldn’t be discounted by advisors. 

Amidst higher interest rates, achieving alpha and managing risk in corporate credit necessitates a nuanced approach. Josh Lohmeier of Franklin Templeton Fixed Income unveils a dynamic portfolio construction method adaptable to diverse investor profiles and market conditions. 

In the current interest rate landscape, sophisticated techniques are essential for capturing alpha with improved downside protection. Alongside meticulous bottom-up security selection, a systematic quantitative portfolio construction process can potentially yield consistent excess returns uncorrelated with peer benchmarks. 

By segmenting the opportunity set based on volatility and strategically positioning along the yield curve, investors can optimize risk allocation and enhance portfolio returns. This adaptable portfolio construction framework offers a repeatable process with consistently positive outcomes, emphasizing the importance of diversification across managers and fixed income portfolios.

Finsum: Quantitative approaches can deliver a more resilient portfolio in times of increased volatility.

Opting to switch broker dealers is typically a last-resort decision, stirring discomfort among advisors. The mere contemplation of change signifies a threshold of considerable discomfort. There are various catalysts for this discomfort, with the top three reasons for advisors to consider such a move descending as follows:

1. Advisors increasingly require practice management and marketing aid from broker/dealers as they expand their practices and seek to optimize efficiency.
2. Advisors prioritize broker/dealers offering innovative technology solutions such as electronic signatures and paperless office systems.
3. Advisors explore broker/dealers offering higher payouts, lower expenses, and more favorable administrative fees to maximize profitability.

Despite the challenges, the landscape of over 500 Independent Broker/Dealers presents ample opportunities for advisors seeking change, with the potential for greener pastures elsewhere.

Finsum: Tech advancements are offering new advisors a plethora of reasons to consider a transition because they can improve both efficiency and client relationships.