What do alternative assets know that stock investors don’t?
“Aren’t record low interest rates a good thing?”
Historically, investors benefit from artificially low interest rates because cheap borrowing costs encourage spending and capital investments, which in return fuel economic activity and growth.
Low rates also offer relief for debt-laden governments and institutions, who can now refinance existing loans at better terms. For example, in 2016 Harvard University issued $2,500,000,000 in bonds to pay off it’s comparatively high interest rate debt issues in 2008 with lower costing capital.
Heather Tookes, professor of finance at YALE School of Management said in an email. “The decision to raise new, lower-cost debt to retire higher cost bond issues is consistent with taking advantage of low-cost opportunities available during favorable capital-market conditions,”
However, ultra-low interest rates can also be a sign that investors are concerned about stagnation and are focused on the safe return of their capital. Accordingly, in times of severe uncertainty, investors will generally flock to bonds, which will historically drive up their prices and send down yields to a nosedive
According to recent statements from Janet Yellen, It may be too soon to tell if the U.S. is headed for negative interest rates. However, The “yield curve” is flattening out, that trend generally means big trouble for the economy.. This is the main reason why investors saving money have not received much love from their banks. In fact, Interest rates on money market accounts and certificates of deposits at major banks remain near record lows.
For example, a recent rate sheet from JP Morgan Chase shows no alternative yielding more than 0.9% annual interest for deposits below $10,000.
For years rate starved investors have watched venture capitalists make fortunes off of pre IPO companies. Recently, The Wall Street Journal created their “Billion Dollar Start Up Club,” of 83 unicorns with valuations over $1B, illustrating for the first time in history there are a significant number of private companies large enough to attract accredited Investors without an IPO event.
In fact, these attractive investments are waiting longer than ever to go public. From 2001-2004, the average age of a company at its public exit was 5.4 years, now most of these same companies don’t go public for nearly 8 years!
Perhaps this is why the richest 1% of the world’s population now owns 50% of its total wealth, according to a report by Credit Suisse.