Wall Street wants to privatize more of your money in market correction

From America’s largest bank to its biggest asset manager, Wall Street investment strategies once reserved for private banking clients are increasingly being offered to Main Street investors.

In the midst of a market correction and ongoing uncertainty about the outlook for U.S. stocks and the global economy, JPMorgan Chase and BlackRock are among major players in the ETF space making bets that private strategies will continue to see greater adoption. That includes private credit as a mainstream bond portfolio holding, as well as equity income strategies that involved more complicated trading than traditional dividend equity funds.

“Across our business we are looking at an incredible amount of demand from ETF investors who are looking for access to alternative investment funds, and we find managers are looking to push more into that wealth space to tap into growth to meet investors where they are,” Ben Slavin, managing director and global head of BNY Mellon ETF business, told CNBC’s Bob Pisani on last week’s “ETF Edge” from the Exchange ETF Conference in Las Vegas.

“While mutual funds still make a ton of sense for retirement accounts, interval funds have been really successful in allowing for access to private credit,” Jay Jacobs, head of BlackRock’s US Thematic and Active ETF business, told Pisani from the conference. He was referring to a form of closed-end fund that has existed for a long time, and in which investors can access private credit, albeit with less liquidity than in an ETF.

BlackRock, the world’s largest asset manager and biggest issuer of ETFs, acquired a provider of alternative investments research last year, Preqin, and Jacobs said the firm plans “more indexing of private investments.”

The SEC recently approved the first private credit ETF, though not without some controversy.

Lack of liquidity in private markets is a key issue for ETFs to solve as they attempt to grow the alternative investment side of the business. These kinds of funds, like Van Eck’s BDC Income ETF — which invests in business development companies that make private loans to small and mid-sized companies — have traditionally been illiquid but because of innovation in the ETF industry, more people are gaining access. 

Another trend that is catching on within the ETF market amid the current volatility in stocks is active ETFs designed to offer downside protection while capitalizing on income gained from selling call options. ETFs including the JPMorgan Equity Premium Income ETF (JEPI) and JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) use this approach.

Goldman Sachs Asset Management’s Bryon Lake said on a recent “ETF Edge” — he was among the leaders of the JPMorgan ETF business when JEPI was created and now runs a similar strategy at Goldman — “You sell that call, you get the premium for that, and then you can pay that out as income. As we look at this space, that’s one category that’s been evergreen for investors. A lot of investors are looking for…