Growing private equity giants are eyeing untapped retail market: Moody’s

With assets under management already soaring at large, U.S.-based alternative asset managers, Moody’s Investors Service reports there are still large growth opportunities available — tied to retail investors.

Total AUM for the four big, publicly-traded alt managers — Apollo Global Management, The Blackstone Group, The Carlyle Group and KKR & Co. Inc. — rose 7% in the second quarter of 2021, and AUM is up 31% year-over-year, the rating agency reported.

This strong asset growth was fuelled, in part, by those firms’ fundraising activity, Moody’s said, noting that fundraising totalled US$119.0 billion in the second quarter, and US$295.4 billion for the 12 months ended June 30.

“The first quarter was great and the second quarter was even better,” Moody’s said. “Fundraising, capital deployment, and realizations were all strong, and in some cases were at or near record levels.”

At the same time, fee-related earnings grew 34% year-over-year to US$1.6 billion, the agency noted.

Additionally, unrealized performance fees totalled US$16.4 billion, up from US$6 billion a year ago, Moody’s said, noting that the large increase there was driven by “market appreciation and new capital deployments.”

The outlook for these firms remains rosy, the report suggested: “Alternative asset management is clearly a growth industry.”

To date, the sector has largely focused on institutional clients, but firms in the space are increasingly seeking to tap into the retail investment market, Moody’s said. The firms see that market as an opportunity that represents between US$55 trillion and US$80 trillion, with “small allocations to alternative investment strategies.”

Moody’s noted that the firms’ bright prospects also carry added risks.

“The industry will need to find ways to deploy ever larger amounts of funds while maintaining investing discipline and continuing to generate above benchmark returns,” the agency said, adding that firms also face “uncertain economic trends, including potentially higher inflation.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.