In quarterly earnings reports, Apollo, Blackstone, KKR and other managers also reported a slowdown in redemption requests and teased future products for the wealth channel.
Alternative asset managers wrapped up second-quarter earnings in recent weeks, with most reporting continued success in raising capital from the wealth channel, declines in redemption requests on select funds and teasers about additional product development.
Publicly traded alternative asset managers that discussed the wealth channel included Apollo, Ares, Blackstone, Blue Owl, Brookfield, Carlyle, EQT, Hamilton Lane, KKR, Stepstone and TPG.
Blackstone, the largest alternative asset manager, reported that its global private wealth AUM grew 16% year-over-year, now standing at $324 billion. Second-quarter sales into the channel reached $8.6 billion. It also highlighted the launch of the first two interval funds developed in a partnership with Wellington and Vanguard.
Across its evergreen strategies, Blackstone posted gross sales of $2.4 billion for its BXPE (private equity) vehicle, $900 million for BXINFRA (infrastructure and real assets), $1.2 billion for BREIT (real estate) and $1 billion for BCRED (its non-traded business development company that focuses on private credit). With BCRED, however, Blackstone posted $1.2 billion in net outflows. Redemption requests exceeded the 5% quarterly limit, and it said it met around 50% of redemption requests, but noted that the pace of requests is now diminishing.
“The semi-liquid structure of BCRED and our private wealth perpetuals is designed to provide greater liquidity than traditional drawdown funds while protecting performance,” Blackstone President and COO Jonathan Gray said during the earnings call. “We have been here before with BREIT, and while it is early in the third quarter, redemption requests are down materially. Looking forward, our performance supports innovation.”
Other firms that reported growth in sales included Blue Owl and Carlyle (both reporting inflows up 60% year-over-year) and Stepstone, reporting a record quarter of $2.8 billion in subscriptions. Ares Management raised $3.9 billion in the quarter, up 15% year-over-year and in line with its previous two quarters and finished the quarter with $76 billion of AUM in its wealth products.
“Our goal from the outset was to build a diverse product offering that meets the needs of investors seeking durable income, tax advantage, real assets and diversified growth,” Ares CEO Michael Arougheti said during the firm’s earnings call. “By providing quality offerings across a variety of products, we’ve demonstrated that we can consistently scale in the wealth channel even as investor sentiment shifts across asset classes.”
In addition, KKR reported $3 billion of inflows across its K-Series of funds designed for accredited investors, with AUM now at $42 billion across that franchise—representing growth of 70% year-over-year and 20% year-to-date. It also talked about its partnership with Capital Group and funds accessible to mass-affluent investors.
“A lot of the answer to [the] question on adoption is spending time with [advisors] so they understand what it is that we actually do,” KKR CEO Scott Nuttall said during the firm’s earnings call. “And that I think has been the most important thing to try to get right. … The second thing I would say is obviously you need access, and you need distribution. … We're building those relationships, and we're watching that closely as to how many different platforms and RIAs our products are on by product type, and those numbers are accelerating up and to the right at a very rapid rate.”
Robert A. Stanger & Co., which specializes in tracking evergreen funds, said that non-traded business development companies cumulatively raised $2 billion in the second quarter, down 82% year-over-year and the lowest total since the fourth quarter of 2020. However, redemptions exceeded new capital raising, leading to net outflows of $3.8 billion during the quarter.
Stanger also reported that redemption demand reached a new high, with repurchase requests equal to 12.4% of NAV in the quarter, the highest level it has measured. Sponsors met 38% of those requests, returning $5.9 billion to investors in the quarter. For the first half of the year overall, sponsors have returned $12.7 billion to investors. So far in the third quarter, three NAV BDCs reported repurchase requests equal to 4.6% of NAV versus 7.9% for the second quarter. Management teams also pointed out that two-thirds of second-quarter redemptions were from the first-quarter queue, which is now diminishing, while new requests are subsiding.
“We think we've troughed by way of inflows, and we commented on that,” Blue Owl Co-CEO Marc Lipschultz said during his firm’s earnings call. “Redemptions are down in our non-traded BDCs, and … we haven't seen increases in redemptions across our other wealth-dedicated products over the past few quarters. So we're cautiously optimistic that non-traded BDC redemptions will keep coming down, and it appears others are seeing that too.”
Several management teams noted that requests have largely come from investors based in Asia, whereas redemption requests from U.S.-based investors have been more muted. In addition, executives underscored that the structures are working as intended, with monthly and quarterly redemption limits serving their role in protecting investors.
Management teams also leaned into discussing the performance of their funds as a counterweight to the redemptions issue and a key to winning advisors’ trust, with many citing double-digit annualized net returns on their products.
“We continue to see significant net inflows into our platform today,” Brookfield CEO Connor Teskey said during his firm’s call. “Obviously, there’s some relative softness in kind of the non-traded BDC space, but even there, Oaktree’s product clearly has significantly outperformed the market. Any softness there is being more than offset by significant inflows we’re seeing in other of our private wealth products, in particular infrastructure, which continues to go from strength to strength. In terms of how we build that product suite out, we’re going to continue to be very methodical and disciplined in how we build out our private markets business.”
Another common theme for asset managers is building out broader product listings across sectors and strategies to create a diversified menu for the wealth channel. In addition, talk continued to pick up on multi-asset and multi-manager funds. There was also discussion about exploring more joint ventures between asset managers. In the medium term, managers highlighted the defined contribution market, implementing daily pricing for some funds, tokenization and secondary market-making to provide liquidity options.
In addition, product development was a common theme. Blue Owl, for example, said it is planning several new wealth products over the next 18 months in alternative credit, real estate and infrastructure. Stepstone said it is looking across private equity, credit, infrastructure, venture and secondaries. Hamilton Lane discussed building a suite of products alongside its international funds, as well as launching new vintages of special situations real estate secondaries and multi-strategy growth equity funds. And Blackstone is rolling out a new evergreen multi-strategy hedge fund (BXHF).
There was also some conversation about how crowded the market is becoming, including smaller asset managers sometimes with a single fund for the wealth channel, attempting to ride the coattails and, in some cases, bringing in funds that are redundant with what already exists in the market. Management teams felt that, ultimately, the herd would thin, with clear winners emerging and potentially some players consolidating.
To retain market share, many of the asset managers talked about how their distribution strategies, which include getting products listed on alts platforms or whitelisted by financial advisory firms. They’ve also invested heavily in building out in-house sales teams aimed specifically at the wealth channel.
During its call, Apollo provided an update on its goal of providing daily NAVs for some of its products, which began on July 1 for its fixed-income funds. It aims for Oct. 1 for all its credit assets. The effort, in part, is to help transparency with private wealth investors and to make its funds more acceptable to 401(k) plans. It also discussed investing in secondary market-making infrastructure to expand liquidity options for evergreen funds.
“The changes we’ve made in estimated daily value, our ICE (Intercontinental Exchange) joint venture, our focus on settlement mechanics and on market making are all efforts to bring us closer to these [investors],” Apollo CEO Marc Rowan said during the firm’s earnings call. “It's not to say the rest of the industry is ignoring this. It’s just no one is as fully committed to what we see as this big trend that is taking place in our industry and will increasingly shape our future.”