Why the Next Decade’s Hottest Asset Class Might Be You
As we near the end of the first quarter of 2020, everyone is wondering what this year’s hottest asset class will be. Will volatility in the equity market continue? Will private equity be able to use its massive cash reserves effectively? Will hedge funds make a comeback?
As fears of a downturn increase, it’s possible that the next major asset class will be none of these things. In fact, it might be you.
As companies gather ever-larger amounts of data on individuals, investing in people will become increasingly commonplace in the decade ahead. We now have the ability to know as much – if not more – about individuals than we do about public companies, and certainly more than we know about the private credit markets.
Data providers know where people shop, what they buy, where they travel, who their friends are and much more. This information could easily be turned into a version of China’s “Sesame Credit” (also known as “Zhima Credit”) score, which takes into account purchase and payment behavior as well as social media activity. Those with a high score have easier access to credit. Using this same information, it wouldn’t be hard to come up with an investment thesis based on a person’s future prospects.
Companies like Upstart and SoFi pioneered this model years ago, letting people invest in borrowers from top universities who were expected to graduate with high-paying jobs that would make them extremely likely to be able to deliver a strong return. Nearly ten years after their launches, the concept seems poised to go from niche to mainstream.
Consider that today, universities themselves are giving loans in exchange for a portion of their students’ future income streams. Many companies are also getting into the lending game with the people they know best – their employees. This stems from a recognition that financial anxiety is making employees unhappy and less productive. Companies are responding by introducing programs that give employees wage advances to help them deal with financial emergencies and avoid payday lenders. After all, there are few better credit risks than people whose salaries you have full transparency into and complete control over.
Home equity sharing companies are also on the rise. These companies offer money in exchange for a stake in many people’s biggest asset – their home. Unlike traditional lenders, these companies don’t ask for monthly payments. Instead, they take a cut of the profits when a home is sold or refinanced.
While investing in equities is largely a question of numbers, investing in people raises moral issues. Where some people will see this as a way to monetize their future and get the seed capital they need to start a business or pay down their student loan burden, others will see it as a new twist on the feudal system of indentured servitude. It also may change the way students think about college, further accelerating the trend of away from the humanities, as people see their friends in the most lucrative fields generate more investor interest.
Securitizing your life won’t be for everyone. But for those who wish to participate, it’s likely that the coming decade will make interest payments seem old-fashioned when compared with the ability to profit from human equity.