"U.S. private credit has grown fivefold since 2009 to $1.34 trillion, transforming from a niche segment into a core portfolio allocation. High-net-worth individuals and institutions have driven the growth of this historically gated asset class. Retail investors and 401 (k) plans have had their investment options primarily limited to public markets, which are increasingly dominated by passive investment strategies."
"With an increasing percentage of "buy" and "sell" decisions dictated solely by fund flows, earnings and other market signals have been muffled, stifling the market's response mechanism. The degradation of fundamental investing has crippled many hedge funds who once placed daring (long and short) directional bets-replaced by factor-driven pod shops (often with nano-second holding periods)-amplifying the breakdown of market efficiency. Passive has further enabled the birth of Big Tech, mega-cap market hegemons that reap outsized riches from self-reinforcing lofty valuations."
U.S. private credit expanded fivefold since 2009 to $1.34 trillion, becoming a mainstream portfolio allocation funded mainly by high-net-worth individuals and institutions. Retail investors and 401 (k) plans remain largely confined to public markets, where passive strategies now hold a majority share. Passive AUM exceeded active last year at roughly 53% market share. Passive inflows buy index constituents regardless of valuation, which muffles earnings and other market signals and degrades the market's response mechanism. The decline of fundamental active investing has diminished directional hedge fund bets and elevated ultra-short-term, factor-driven trading, eroding market efficiency and advantaging large incumbents at the expense of smaller competitors.
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