Real estate assets and other private investments have never been more accessible to clients. That might not be a good thing.
The recent meltdown of the alternative asset manager Yieldstreet, four of whose real estate funds resulted in 100% losses for investors, according to CNBC, highlights the risks of bringing private investments to Main Street. (More than 20 other Yieldstreet funds are currently on a watchlist.) The losses come as an ongoing democratization of private markets — a $13 trillion industry expected to grow to $20 trillion by 2030, according to BlackRock — continues to make previously exclusive options available to average investors. President Donald Trump even signed an executive order earlier this month opening them to 401(k)s. But these investments come with potential risks.
“Historically, this is part of the cycle of Main Street shunning the staid, the old, the used ideas,” said Alex Morris, the CEO of F/m Investments. “And Main Street, for a little while, loves it. Until there’s a blowup.”
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Private credit and alternatives-focused funds have grown in popularity of late, and one way asset managers bring these investments to retail investors is through ETFs. The index fund versions of these funds, which invest in assets including real estate, in the case of Yieldstreet, aren’t necessarily a bad bet — so long as investors take a “long-term view,” Morris said. “ETFs thrive on liquidity, so taking this inherently illiquid structure… and saying, ‘We’re going to mark this to market several thousand times a day,’ is a little peculiar,” he added. “They can’t go and make more houses in the same way you can with shares of SPY.”
But although private credit and alternatives-focused ETFs have grown in popularity of late, some advisors remain wary. State Street’s private credit ETF, PRIV, has since grown to $145 million in assets, but it launched in February with just $50 million. Other funds capitalizing on the proliferation of private investments include:
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The VanEck BDC Income ETF (BIZD), which owns companies that lend to private middle market companies and has $1.6 billion in assets.
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The BondBloxx Private Credit CLO ETF (PCMM), which invests in private credit CLOs and has $140 million in assets.
Used Goods. Another concern, particularly for pre-retirees, is ensuring portfolios liquidate evenly over time. “It’s unlikely someone constructing their own portfolio can solve the basic problem of timing their withdrawals to last their lifetime, much less creating an optimal portfolio from commercial products,” said Teresa Ghilarducci, an economist at The New School. “Even a target date fund with private equity will probably not be low-fee enough for an ordinary, single investor.”
