Stocks and bonds have been weaker since Wednesday’s stronger than expected inflation report. While some on Wall Street are now questioning whether the Fed will be able to cut rates at all, Rick Rieder, Blackrock’s head of fixed income, continues to see rate cuts later in the year.

He notes that Thursday’s PPI report was softer than expected and an indication that most inflation is contained in the services sector. He doesn’t believe that monetary policy could have too much impact on this type of inflation and that it would have damaging effects on other parts of the economy. Overall, he sees recent data consistent with core PCE at 2.6-2.7%.

He believes the current data justifies between one and two rate cuts before year-end. However, he believes that the data could still evolve in a way that justifies more. With rates above 5% and core PCE below 3%, monetary policy is very restrictive, so he believes the Fed will lower rates regardless.

In terms of fixed income, Rieder is bullish on short-duration notes, as investors can get yields between 6% and 7%. He sees the 10-year Treasury yield modestly declining into year-end due to softer economic data and the Fed cutting rates. However, longer-term, he believes that it is range-bound between 4% and 5%.

Finsum: Many on Wall Street are starting to turn more pessimistic about the Fed’s ability to cut rates given recent inflation data. Blackrock’s Rick Rieder still sees cuts later in the year, even if the data doesn’t significantly improve.

Over the last decade, private credit has boomed, growing from $435 billion to $1.7 trillion. One consequence of this has been a growing marketplace for private credit secondaries. Currently, the private credit secondary market is estimated to be worth $30 billion, but it’s forecast to exceed $50 billion by 2027.

The secondary market is where private credit investors can sell their stake early. It’s natural that as allocations to private credit have increased, there is now a need for liquidity, which is provided through the secondary market. Most of it is driven by investors looking to rebalance their holdings. Another benefit is that it can potentially provide diversification to private credit investors. Some managers are now fundraising for funds dedicated to the private credit secondary market, such as Apollo Global Management and Pantheon.

There is also an analogue between the private equity secondary market and the private credit secondary market. Although the private equity secondary market is more mature and larger at $100 billion, with many more established funds in the space. According to Craig Bergstrom, managing partner and CIO of Corbin Capital Partners, “I don't think private credit secondaries will ever get to be as big as private equity secondaries. And I don't think they'll even get to be as large as private credit is in proportion to private equity because the duration is shorter.”

Finsum: A consequence of the boom in private credit is a growing and active market for secondaries. It’s evolving similarly to the secondary market in private equity and is forecast to exceed $50 billion by 2027.

In 2001, Vanguard pioneered a novel method for integrating ETFs as a share class within existing mutual funds, propelling the company to prominence in the ETF market. However, this competitive edge dissipated when the patent lapsed in May 2023, prompting a frenzied quest within the fund industry to secure regulatory approval for Vanguard’s ETF share class innovation. 

Noteworthy industry players, including Fidelity, Dimensional Fund Advisors, and Morgan Stanley, have vigorously advocated their positions to the Securities and Exchange Commission (SEC), joined by a myriad of smaller asset managers, propelled by factors such as immediate scalability, established track records, and structurally superior offerings.

Despite prior reservations expressed by the SEC regarding ETFs constructed as a share class of multi-class funds, the industry's push for ETF rule revisions has gathered steam, prompting the active involvement of leading stock exchanges. Analysts anticipate substantial market shifts with any SEC endorsement allowing fund companies to adopt Vanguard's ETF structure.

Finsum: The landscape of for ETFs is changing quickly and the race to the bottom, but regulation will be critical.

According to the study, nearly two-thirds of financial advisors state that they are primarily influenced by factors within their own practice when constructing portfolios. Conversely, these advisors are less likely to take input from their broker dealer (B/D) or custodian. The divergences between advisor channels pose challenges for asset managers in establishing their products and services effectively. 

Cerulli suggests that asset managers concentrate their distribution efforts on channels where advisors rely more on internal portfolio construction methods. Furthermore, the research highlights that advisors within the independent registered investment advisor (RIA) channel tend to construct portfolios internally, followed closely by hybrid RIAs. 

Asset managers who allocate distribution resources towards channels such as independent and hybrid RIAs, where advisors tend to make their own investment selections, may have an advantage in portfolio construction.  

Finsum: Independent RIAs help meet their clients’ needs with better portfolios.

Goldman Sachs Asset Management (GSAM) is aiming to become one of the top 5 providers of model portfolios. Currently, GSAM is the ninth largest in terms of asset managers, with model portfolio assets of $14.5 billion. Over the next decade, model portfolios are projected to have more than $11 trillion in assets in total.

According to Alexandra Wilson-Elizondo, the co-CIO of GSAM’s multi-asset solutions group, the firm’s strategy is to outgrow its competitors rather than take existing market share as model portfolio assets are projected to grow 20% annually. Model portfolios consist of off-the-shelf strategies and custom models. Demand for the latter has been robust among wealthy clients.

Increasing adoption by financial advisors is the primary growth driver for the category. By decreasing time and resources spent on investment management, advisors can add more value in areas like client service, tax planning, and estate management. 

Currently, the leading provider of model portfolios among asset managers is Blackrock, followed by Wilshire Associates, Capital Group, and Vanguard. In 2019, GSAM bought S&P Global Market Intelligence, and it acquired NextCapital Group in 2022 to build the foundations of its model portfolio business.

Finsum: Goldman Sachs is aiming to grow its model portfolio segment and become a top-five provider among asset managers. Forecasts are for the category to grow 20% annually and exceed $11 trillion by 2030.