Private Credit, AI Investments Emerge as Key Mid-Year Investments

Halfway through the year, individual and retail investors are navigating an uncertain economic backdrop marked by persistent inflation concerns and elevated interest rates. Two new mid-year outlooks suggested that investors are becoming increasingly selective about where they seek returns.

Fortress Investment Group LLC argued in its mid-year outlook that private credit may be better positioned than private equity in the current environment, while Apex Fintech Solutions Inc.’s latest Investor Pulse report found retail investors rotating capital into artificial intelligence infrastructure investments.

Although the two reports focused on different segments of the market, both pointed to investors prioritizing durable cash flows and specific growth opportunities, rather than making broad market bets, gravitating toward areas they believe can withstand uncertainty.

For institutional investors, that increasingly means private credit strategies that can benefit from elevated rates and provide contractual income streams. For retail investors, the focus remains on technology and AI-related opportunities that could drive future growth.

“We think investors should be positioned for the wave, not the lull,” wrote Elizabeth Burton, chief strategist at Fortress, in a statement.

Fortress Sees Opportunity in Private Credit

Fortress characterized its market stance as “cautious, but selectively constructive,” citing reduced geopolitical tensions and easing energy pressures since the spring, while warning that the broader economic environment remains fragile.

Among its six themes for the second half of the year, the firm highlighted private credit as one of its strongest convictions. Burton argued that private credit could outperform median buyout private equity returns over the medium term, supporting a greater allocation to private credit than private equity within alternatives portfolios.

The preference reflects Fortress’ expectation that inflation will remain elevated and interest rates could stay higher for longer than many investors anticipate.

Burton said inflation could exceed 4% by the end of the year and noted she would not be surprised to see the yield on the 10-year Treasury note reach 5%.

Against that backdrop, Fortress stated that it favors floating-rate and asset-based lending strategies, particularly bilaterally negotiated credit arrangements that may offer attractive yields while benefiting from higher interest rates.

The firm also highlighted Treasury inflation-protected securities, infrastructure assets with inflation-linked cash flows, and gold as potential portfolio hedges.

At the same time, Fortress identified several risks that could challenge its outlook, including a faster-than-expected slowdown in inflation, a disinflationary productivity boost driven by artificial intelligence or a Federal Reserve that proves more successful at controlling inflation than anticipated.

“From where we sit, the outlook may call for positioning that is less a bet on catastrophe than an insistence on being paid to wait—on cash flows, uncorrelated return streams and discipline on long-duration equity,” Burton wrote.

Technology Driving Investor Interest

While Fortress flagged artificial intelligence as a potential wildcard for the broader economy, Apex reported that its second-quarter investor data suggest that retail investors remain focused on technology-driven growth opportunities.

According to the report, retail investors shifted away from energy and commodity positions during the quarter and increased exposure to companies tied to AI infrastructure, particularly memory-chip manufacturers.

Micron Technology Inc. became a top-five holding across all four generations tracked by Apex, from Baby Boomers through Generation Z, while SanDisk Corp. and Western Digital Corp. also advanced in portfolio rankings.

The trend extended beyond memory manufacturers. Intel Corp. and Marvell Technology Inc. were among the quarter’s largest net purchases, reflecting what Apex described as a broadening of the AI infrastructure trade.

Notably, following its June 12 listing, SpaceX entered the top 25 holdings across all four generations tracked by Apex, suggesting that the enthusiasm for high-profile technology companies transcends age demographics.

The trend may provide insight into how investors could respond if other prominent artificial intelligence companies eventually pursue public listings, according to the outlook.