Hello, I’m Michael.
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A sunny good morning from Washington, DC, as I return from a bustling week of meetings in New York City.
HEC has recently unveiled their HEC Dow Jones rankings for Large Buyout Performance, listing the top 20 PE firms as per buyout funds raised from 2011 to 2020. The interesting aspect? The anonymity of many firms on this list.
From a survey by Bain & Company in December 2022, a surprising trend emerged. When high-net-worth investors were asked to name up to three firms known to them for alternative asset investment, the most common response was, “I don’t know.”
This paints a vivid picture of private markets’ nascent phase, particularly in its adoption within the wealth channel. A ripe opportunity exists for firms to build or should I say, bolster their brand recognition, especially for established traditional asset managers venturing into private markets.
Moreover, there’s a prevailing inclination among wealthy investors to associate familiar big financial brands with private market offerings. Notably, firms like BlackRock and Goldman Sachs have substantial private market operations, commanding $400B and $500B AUM, respectively. While I have discussed BlackRock’s forays into private markets, including acquisitions like GIP, Preqin, and HPS on Alt Goes Mainstream, and Goldman’s huge yet stealthy alternatives business similarly showcased.
However, despite the growing footprints of firms like Fidelity, Schwab, and Vanguard in the private markets sphere, their AUM in this category still pales in comparison to titans like Blackstone, KKR, Ares, Apollo, Carlyle, each represented with smaller bubbles in Bain’s chart.
Let’s dive into the top 20 firms on the HEC Dow Jones Performance Rankings.
To those well-versed in private equity, these firms represent some of the stalwarts in the industry. Their presence on this list largely aligns with their performance track records between 2011 and 2020.
A few key insights emerge from this ranking:
Not everything to everyone… yet?
While some firms have ventured into adjacent strategies like credit, very few of them can be dubbed true multi-strategy platforms incorporating all conceivable private market strategies. Take Francisco Partners, for instance, its $3B credit business is a complement to its core $45B AUM enterprise, rooted in funding tech firms as private equity and growth investors. While their AUM is commendable, FP hasn’t branched into infrastructure, real estate, venture capital, or secondaries strategies.
Expanding horizons without sacrificing PE performance
Clearlake exemplifies the model of expansion without compromising on core performance, scaling its credit business while keeping its PE operations robustly healthy from 2011 to 2020. With GP stake investments from blue-chip players like Blue Owl, Clearlake has grown its credit portfolio to over $57B AUM, comprising 60%+ of its $90B total AUM.
Similarly, Permira’s growth trajectory saw its direct lending strategy reach over €16B AUM, with its CLO business pushing over €4B AUM, contributing to over €80B total platform AUM. Credit strategies inherently fit private equity, with robust PE platforms providing these firms the leverage and brand to delve into credit, benefitting existing or analogous portfolio companies and synergizing across business units.
While there’s an industry push towards becoming comprehensive solutions for LPs, the same holds when it pertains to catering to companies across their equity and credit needs.
Yet, strategies focused on omnichannel expansion also bring forth challenges—especially for LPs wary of overexposure to specific sectors. An LP allocating to a firm’s tech-focused private equity strategy may face overlaps when investing in the firm’s tech-laden direct lending strategy, despite differences in risk profiles or returns.
The approach towards evolving platforms, then, will need to factor in LPs’ broader needs—especially in the wealth channel where simplifying GP relationships may be preferred.
The billion-dollar question remains: could we witness another Blue Owl—scaling from $0B to $250B AUM in just nine years—emerge from today’s private markets?
While challenging, we could potentially see disparate firms with different specializations—say infrastructure versus tech-related equity and credit—merge to synergize distribution and evolve into a $100B-200B AUM beast across varied strategies.
Such partnerships could spawn private market giants claiming “best-of-breed” investment prowess and historical performance.
Tech-centric wins
It’s noteworthy that technology-driven private equity funds were among the top performers. Given today’s environment where practically every entity is a tech or tech-enabled company, this might not come as a surprise.
Between 2011 and 2020, the tech industry experienced seismic innovation, and adaptations accelerated. Firms like Francisco Partners, TA Associates, Thoma Bravo, Accel-KKR, Veritas Capital, Hg, Permira, and more capitalized well on this wave.
With an eye towards the future, I imagine private equity players leveraging GenAI and burgeoning AI trends to bolster business efficiency in tech-enabled services. Certainly, while the upcoming decade might reveal new potential leaders in these rankings, entrenched private equity and tech brands should maintain strong performance persistence.
Wealth-focused initiatives
Selective firms among these rankings, including Hg and Permira, have moved purposefully towards the private wealth channel. In 2022, Hg carved a team focused on private wealth, launched Fusion, its premier open-ended fund targeting private banks, family offices, and individuals by 2023.
As these firms scale and their AUM swell, I anticipate increased investments into bespoke wealth businesses to serve the channel’s unique manufacturing and product requirements—following Hg and Permira’s lead.
Scale did not dilute returns
Within the frameworks laid out by Olivier Gottschalg, the average scale (capital raised in a “vintage decade”) for the top 10 firms exceeded those ranked between 11-20, undeterred by scale. Seven of the top 10 raised over $10B in this epoch, highlighting their adeptness at maintaining performance amidst scaling.
Blue Owl’s GP Strategic Capital Outlook highlighted how leading alternative managers adeptly captured significant capital shares, even within fragmented strategy competition.
The titans keep getting stronger. Surpassing scale challenges, top-ranked firms in the HEC Dow Jones rankings like Veritas Capital, navigated this well. Their 2017 fund exceeded its predecessors in size and performance.
The ultimate question remains: Will performance outshine branding during capital raising, particularly in the wealth channel?
Not necessarily. Branding, product structure, and manufacturing prowess reign supreme. The competitive fight for inclusion on wirehouse menus is largely between hefty firms with recognizable brands and expansive distribution capacity.
Particularly, independent wealth platforms balance scalability with customization. While attracted to larger funds capable of assimilating hefty allocations, smaller allocations remain supportable.
Model portfolios provide another route for wealth channel engagement, with leading alternative managers likely creating proprietary models inclusive of firm-wide strategic offerings. Here, brand remains pivotal alongside the ability to offer a consolidated multi-strategy wealth channel solution.
For firms challenged by size or reach when engaging the wealth channel—collaboration and partnerships might provide a viable path.
In previous discourses, I referenced opportunities for niche and specialized scale players to navigate the wealth channel effectively.
Scaled specialists like Stonepeak in infrastructure, Vista in technology, Hg, and Permira have carved specialized niches, strategically marketing and branding to secure victories within the wealth channel.
These firms craft unique product mechanisms—perhaps through how they structure evergreen fund structures or appeal directly to specific LP bases—resulting in successful capital raising.
I anticipate similar firms to forge partnerships with others without competitive overlaps, aiming to cater model portfolios touted as “best-of-breed” for the wealth channel.
Integrating these tailor-crafted models will be crucial to mastering the wealth channel. Alliances that synthesize bespoke private market models could clinch relative leadership amid this intricate and decentralized wealth landscape.
Strategically pivotal? Creating innovative, differentiated model portfolios is one path.
A statement hidden within a Broadridge white paper discussing public market model portfolio growth offers private markets institutionalization teams a vital insight: Asset managers perceive model portfolios as nascent distribution channels, allowing active funds to competes seamlessly with passive counterparts.
For less sizable firms, differentiation can be a discerning strength.
Model portfolios permit an alternative asset manager turnkey distribution access.
Why not enable partnerships fostering crossover models showcasing diverse strategies and asset classes?
iCapital exemplifies this through two model portfolios, each composed of a curated manager set covering private equity, private credit, and real estate.
Models provide utility and ease, enabling advisors to pigeonhole allocations to private markets efficiently.
Not alone in their venture, BlackRock’s and Partners Group’s pioneering multi-private market model portfolio collaboratively developed serves to elevate advisory efficiency in private market allocation seamlessly.
Model portfolios, incorporating private market exposures into core allocations, mitigate volatility while elevating return potential, evidenced by BlackRock and Partners Group’s illustrative charts within AGM discussions.
Model portfolios present tremendous promise for enhancing traditional portfolios—like the 60/40 model—particularly when public market returns face downward projections amid a changeful investment milieu.
BlackRock’s Q4 2024 Student of Private Markets white paper captures the horizon for allocators. Looking forward, it projects private market opportunities in credit, infrastructure equity, and buyout avenues to potentially outshine public market counterparts.
What solutions lie within this anticipated investment paradigm shift?
Not long ago, Stephanie Drescher, Apollo’s Partner and Chief Client and Product Development Officer, outlined an insightful investment scaffold on Bloomberg TV.
Drescher brought forth a salient notion: “both public and private domains harbor safety and risk, contingent on the manager.”
Her view was echoed within a 2024 Ares white paper, penned by Brendan McCurdy, which underscored critical rationale behind their proprietary model portfolio launch.
McCurdy highlighted Ares’ commitment to risk-based diversification—or “factor risk budgeting”—as pivotal for crafting more potent portfolios with private markets, unlocking wealth pathways.
The white paper underscores the flaws intrinsic to the 60/40 portfolio: risk, predominantly, stems from equity allocations.
Crucially, Ares remarks, several asset classes beyond core equity remain dictated by core equity risk influencers.
McCurdy correlates that even fixed-income assets hold partial equity dependence, noting, “over a third of high yield’s variability is shaped by the same forces impacting core equity.”
He further contends that varying asset classes contain common risk overlaps.
McCurdy’s proposition suggests an alternate paradigm—factor risk budget-based foundations.
Examining risk through this perspective, McCurdy suggests a significant 50% allocation to private markets.
Ares’ assessment, contrasting the conventional 60/40 framework? They note nearly twice the cumulative returns, with significantly reduced drawdowns.
Ares proclivities illuminate a 50/50 model portfolio approach for investors.
Ares’ model proposes a notable reconfiguration for public versus private market allocations. Asset managers or advisors might perceive this differently.
Nevertheless, this marks an intriguing sector development—investors propelling asset allocation frameworks into territories incorporating private markets and broaching substantive liquidity and risk inquiries.
The next phase? Firms venturing into tailored models, or collaboratively creating precisely engineered model portfolios fusing public and private market excellence.
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AGM’s newly launched Index keeps tabs on leading publicly traded alternative asset managers.
Several industry juggernauts enjoy public trading status—offering insight into investors’ perceptions regarding private market exploration and alternative investment allocation trends.
Note: AUM figures derive from fee-bearing AUM where relevant.
EQT showcased a video spotlighting CCO Suzanne Donohoe on private markets’ rising allure among the wealth channel.
Apollo revitalizes the market structure, as public and private sectors converge
Financial Times’ Antoine Gara delved into insights from Marc Rowan, CEO of Apollo, speaking on recent earnings. Gara extrapolates Rowan’s perspective that BlackRock’s acquisitions in private credit (HPS) and infrastructure (GIP) portend a “convergence” between public and private portfolios. Rowan called these an industry wake-up call, visualizing future fund collaboration between alternative and traditional asset managers, supplementing product competitiveness in a world where indexation and correlation abound.
AGM’s 2/20: Rowan’s comments at Apollo’s latest earnings call reflect pivotal, intertwining public and private market transitions. Top alternative asset managers amassed record private credit funds, driven by demand and shifting perceptions of risk versus safety. Private credit’s burgeoning scale empowers independent deal-making, straining bank participation without partnerships. Regulated and capital-constrained banks retain origination credibility, furnishing loan origination partnerships with private credit firms.
Rowan cites public-private market convergence—a crucial private sector evolution—heralded by BlackRock’s strategic acquisitions.
The repositioning Rowan mentions? BlackRock’s 2024 landmark moves acquiring HPS, GIP, and Preqin.
Rowan expounds:
BlackRock’s substantial 2024 transactions lay groundwork for public-private integration. Convergence emerges as a critical demand driver for private assets. Apollo’s products, supplying returns over unit risk, align with traditional managers seeking product differentiation in indexed, data-rich markets.
Evolutions foresee traditional asset managers integrating public-private product portfolios, co-branding ventures, or vast managed accounts, utilizing private assets from myriad origins. This could benefit the broader industry.
Challenges remain for traditional managers needing upskilling and salesforce education, catering to wealth channels. Nonetheless, as Rowan outlines, significant partnerships might bridge alternative-traditional manager divides.
Apollo’s shift has traction—$12B capital raised via their wealth business spotlighted in their latest earnings.
Profound question persists: Will brand ultimately prevail?
Apollo unveils strategic ambitions to develop the first exclusive Private Credit Marketplace
Bloomberg’s Laura Benitez reveals Apollo’s private credit marketplace plan to simplify private credit asset trading transparently. Spearheaded by Apollo Capital Solutions Head Eric Needleman, they’re engaging banks, exchanges, and fintech collaborators to offer private credit deal transparency and pricing. The model would facilitate Apollo’s extensive debt origination activities, with marketplace ambitions enabling substantial transaction and fee generation.
Needleman reflected on open architecture marketplace creation. Apollo Capital Solutions aims to helm this as broker-dealer, recruiting seasoned credit sales head John Maggiacomo of RBC Capital.
There’s evident interest in a private credit marketplace from other alternative players. TPG Angelo Gordon strategy head Brendan McCaffrey noted partnerships absolute to develop these instruments’ secondary markets, seeking seasoned partnerships adept in both private and syndicated sphere.
AGM’s 2/20: Private and public credit converge, with Apollo positioning to capitalize on this dynamic.
The premise foresees leveraging origination scale in $222B loans processed annually, augmenting transparency and efficacy in private credit. This aligns supply with investor engagement from insurers and private wealth, burgeoning private credit stakeholders.
Alternative managers ambitiously evolve into comprehensive equity and credit solutions providers, Apollo’s marketplace venture furthering this vision.
Apollo’s substantial private credit infrastructure derives advantages from 16 platform ownerships within credit’s diverse categories.
Apollo’s proposition advocates structural advantage creation in private credit through an integrated origination and distribution apparatus.
Marketplaces, blossoming from consortium-style models similar to prior capital market developments, introduce evolutionary benefits.
Observed previously, the structuring of private markets is progressively comparable to equities, fixed income, and derivatives. Apollo’s marketplace initiative accelerates this trajectory.
To integrate alts mainstream, sourcing premier talent is prerequisite. Job openings at private market entities spotlight this evolution. Interested parties can reach out for introductions to these teams. Private markets companies or funds wishing to feature job listings within the Alt Goes Mainstream community are encouraged to contact us.
Browse available positions:
🔍 Blackstone (Alternative asset manager) – Senior Video Producer, SVP – Marketing. Learn more here.
🔍 Apollo (Alternative asset manager) – Senior Public Investor Relations Professional. Learn more here.
🔍 Ares (Alternative asset manager) – VP, Product Management & Client Services, Wealth Management Solutions, APAC. Learn more here.
🔍 iCapital (Private markets infrastructure investment platform) – Head of Business Development, Family Offices – SVP/MD. Learn more here.
🔍 Blue Owl (Alternative asset manager) – Private Wealth Strategy Senior Lead. Learn more here.
🔍 Blue Owl (Alternative asset manager) – Head of RIA Channel Marketing, Principal. Learn more here.
🔍 Blue Owl (Alternative asset manager) – Alternative Credit Product Marketing, VP. Learn more here.
🔍 Brookfield (Alternative asset manager) – VP, Private Markets Products. Learn more here.
🔍 BlackRock (Asset manager) – Aladdin Wealth Tech – VP, Implementation Manager. Learn more here.
🔍 Hamilton Lane (Alternative asset manager) – VP, Data Intelligence. Learn more here.
🔍 Crest Capital Advisors (Wealth manager) – Private Wealth Associate – Crest Capital Advisors. Learn more here.
🔍 Dynasty Financial Partners (Wealth management platform) – Alternative Investment Specialist. Learn more here.
🔍 Edward Jones (Wealth manager) – Director, Alternative Investment Strategy. Learn more here.
Alt Goes Mainstream facilitates a knowledgeable association of private market professionals.
For partnership inquiries, complete the linked form below.
Partner with Alt Goes Mainstream
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Thank you for reading. If you enjoy Alts Weekly, share it with friends, colleagues, and anyone interested in private markets.
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Have suggestions, or wish to feature articles or topics on Alt Goes Mainstream? Reach out! I’m eager to incorporate them into future pieces.
Special thanks to Michael Rutter and Nick Owens for their invaluable newsletter contributions.
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