The largest listed U.S. Private capital Since the severe market sell-off last year, the value of the company has more than tripled as investors seek to benefit from the huge fees they earned during the boom Unlisted assets.
The total market value of Blackstone, KKR, Carlyle, Apollo and Ares has soared from a low of 80 billion US dollars in March 2020 to approximately 252 billion US dollars this year. Private equity executives issued a statement on the earnings call with analysts this summer Enthusiastic tone.
Marc Rowan, CEO of Apollo Global Management, said: “We are fortunate to be in a growth business. “Business is improving almost every day. The business trend is very favorable. “
Blackstone CEO Stephen Schwarzman called the company’s second quarter “the most influential quarter in our history”, both in terms of its financial performance and alternative asset management companies In terms of the broader development trajectory currently enjoyed. “Our momentum has never been stronger,” he told analysts.
Part of the appeal of buying shares in private capital groups is that institutions such as pension plans or insurance companies are willing to pay high management fees for their funds.
These big investors are facing Tricky market structureAlthough the market rebound since the coronavirus crisis has increased the value of their holdings, given record or near-record valuations, the prospects for further gains in almost all major bond and stock markets now appear to be limited.
Therefore, many people turn to private equity, venture capital, infrastructure, real estate and Direct loan -Strategies are often classified as “private capital” because they invest in opaque assets that are not traded on public exchanges-to expand their returns.
Garvan McCarthy, a partner at Mercer, an investment consulting firm, said: “People are very worried about the long-term prospects of listed stocks and fixed income, so they need to find alternatives to generate targeted returns.”
The speed of fund raising is faster than the speed of investment. Goldman Sachs data shows that the fundraising effort is so large that these five listed American alternative investment companies alone have about 440 billion US dollars of “dry powder”-funds promised by investors but not yet deployed. This is the highest level on record and twice the firepower four years ago.
The comprehensive assets they manage range from classic leveraged buyout funds to late-stage venture capital and Private debt At the end of June, vehicle prices were US$2.1 trillion, an increase of nearly 37% from June last year.
“We continue to benefit from strong long-term tailwinds that drive demand for alternative private assets and investors’ desire for long-lasting returns,” Ares Management CEO Michael Arougheti said on the company’s recent earnings call.
entire Private capital Morgan Stanley predicts that the industry manages US$7.4 trillion and will grow to US$13 trillion by 2025. “The speed of almost all aspects of our business is improving,” Carlyle CEO Kewsong Lee told analysts on a conference call earlier this summer.
“Transactions are completed in a shorter period of time, financing is being executed faster, exit opportunities are emerging faster, funds are raised faster than ever, and the accelerated impact of disruptive technologies and changes in the pandemic are driving cross-departmental changes. And regional private capital,” he added.
Nonetheless, the best-performing private capital funds can only accept so much institutional cash and are usually oversubscribed. This leads to the flow of funds to players and strategies that may not perform as expected, and high fees may erode returns.
Professor Ludovic Phalippou of Finance at Oxfordside Business School published a report last year Paper It is estimated that the private equity industry collected US$230 billion in performance fees from the funds raised in 2006-15, but the returns it generates are only roughly equivalent to cheap index funds that track smaller stocks.
Some analysts said that due to the emergence of private market strategies, the large inflow of funds has been at least partially helped Not so unstable on the surface It is different from public market valuations because valuations are usually listed every quarter and enjoy certain discretion.
Others believe that the main attraction is that it indirectly allows investors such as pension plans and insurance companies to use borrowing to increase returns.
“If I suggest that public equity shareholders should use their portfolios, I would be considered irresponsible and reckless,” said Lord Paul Myners, a major figure in the City of London.
“However, owners of public portfolios are happy to embed leverage in their portfolios [by investing in private equity funds]. They don’t think this is weird at all. The embedded debt in private equity is hidden. “
In addition, some competitors in the private equity industry have stated that the amount of funds poured into private capital will inevitably erode returns, namely Alpha.
Sandy Rattray, chief investment officer of the Man Group, a hedge fund manager, said: “Given the way private equity grows, it’s impossible to continue to have a lot of alpha.” “The general view is obviously just to invest more money in private equity, but I don’t Determine if I fully purchase.”