The not-so-holy trinity

Markets zigged, investors hedged, and BlackRock made bank.

The firm’s assets under management rose to a record $14 trillion after attracting $342 billion of client inflows in the fourth quarter, pushing total inflows for the year to $698 billion. The quarter blew past expectations, fueled by strong demand for long-term strategies, particularly ETFs. The stock jumped 5.93% today.

At the same time, the world’s largest asset manager is quietly remaking itself beyond public markets: BlackRock has spent roughly $28 billion on acquisitions over the past few years—including Global Infrastructure Partners, HPS Investment Partners, and Preqin—positioning itself as a major force in private credit and infrastructure.

Big flows, bigger faultlines

While that sounds all well and good, private credit is one of what the Leuthold Group dubbed the “risky trinity”, alongside AI and bitcoin—three themes that are seeing "unprecedented convergence” after years of rapid growth.

AI is pulling all three trends together. Data center buildouts are absorbing vast amounts of capital, increasingly financed by private credit as banks pull back. Moody’s estimates at least $3 trillion will be invested in data-center projects over the next five years, with a growing share coming from private lenders.

Bitcoin completes the triangle: Mining firms have repurposed data centers for AI workloads and financed the pivot with—you guessed it—private credit, often using bitcoin as collateral. A sharp drop in crypto prices could trigger forced selling and credit stress, amplifying volatility across the entire “risky trinity.”

So…now what?

Leuthold isn’t waiting around to find out.

The firm has “dramatically” reduced exposure to information technology and communications to a nearly 20% underweight, rotating instead into financials and healthcare, now its largest overweights—a decidedly unsexy pivot, by design.

Within financials, Chun Wang, co-portfolio manager at Leuthold, favors big banks like JPMorgan and Morgan Stanley, citing a supportive macro mix and an expected steepening yield curve that would benefit both commercial and investment banks.

“Regional banks are more exposed to the troubles within the private-credit sector and also credit-card companies are more exposed to the lower lack of the K-shaped economy,” Chun told MarketWatch.

BlackRock has become a force to be reckoned with in private credit, but private credit is one leg of an increasingly wobbly stool supporting the data center buildout, which in turn is supporting the entire market. If the “risky trinity” proves to be too risky, “boring” investments might be your best bet after all.—SY