Difficult industry-wide fundraising dynamics will persist this year – that’s the main takeaway from the fourth quarter and full-year 2022 earnings season in February.
Though senior executives of private equity’s listed firms reported concerns over inflation, a potential recession and slower dealmaking over the course of the year, firms generally reported positive results in the quarter, along with confidence in their ability to weather the downturn. TPG, for which 2022 was its first year as a public company, recorded $30 billion of inflows, a 47 percent increase over the previous year.
What has also been consistent among listed firms’ earnings results is that investor demand for private markets remains robust. Carlyle Group’s interim chief executive Bill Conway said the firm expects to roll out more fundraising strategies this year than it did in 2022, including the next vintage of flagship funds in credit opportunities, secondaries, co-investments and buyouts. The firm also anticipates that the overall dollar volume of fundraising in 2023 will be higher than the $30 billion it gathered last year.
Private credit shift
Collectively, Blackstone, Brookfield Asset Management, Carlyle and KKR saw $167 billion in inflows in 2022 for private credit strategies – approximately $77 billion more than the amount gathered for their PE vehicles.
Blackstone president and chief operating officer Jon Gray acknowledged investor constraints such as overallocation to private equity, specifically with US LPs. Currency headwinds also made it harder for overseas investors to allocate capital.
He added: “I would say there is a little bit of a shift. I think private credit is considered more attractive today. And so, we see a lot of people moving in that direction.” Blackstone missed its target of amassing $1 trillion in assets by the end of 2022, capping the year with $975 billion.
KKR chief financial officer Robert Lewin also noted that over 70 percent of the firm’s fundraising last year came from its real assets and credit businesses, “strategies that are often front of mind for our clients in rising interest rate as well as inflationary environments”. Meanwhile, roughly two-thirds of Carlyle’s capital-raising efforts came from areas such as global credit, global investment solutions, natural resources and real estate.
Brookfield expects 2023 to be a record year of fundraising for its credit business, with growth fuelled by its growing insurance solutions business.
TPG, which saw its private credit business Sixth Street spin out in 2020, is also looking to rejoin the space, CEO Jon Winkelried said on the earnings call. “We have not backed off what we’ve said earlier, which is we have an objective of re-entering that space. And we expect to at some point. Dealmaking, as you know, as far as inorganic entry, dealmaking is always complicated, particularly in these types of business. So we’re working on finding exactly the right partners and the right opportunity.”
In fact, GPs have been careful about predicting the results of their flagships. TPG chief financial officer Jack Weingart noted it was “too early to tell” if the firm will hit all of its fundraising targets. Apollo Global Management expects its 10th flagship fund – which has gathered approximately $15 billion in commitments as of January – to “land within striking distance” of its $25 billion target. Blackstone, meanwhile, has not yet disclosed the target for its ninth buyout flagship.
White space in private wealth and non-US regions
As firms look at 2023 and beyond, tapping the private wealth and retail channels has been a consistent theme, with most listed PE firms signalling that the investor base would contribute between 25 and 50 percent of future inflows. As such, private wealth teams within the listed giants are focusing on new product development and distribution in the coming quarters.
Apollo Global Management chief executive Marc Rowan said the firm was on track to meet or exceed its $50 billion capital-raising target from the wealth channel by the end of 2026. It ended 2022 with $30 billion of AUM from the wealth segment. TPG also reported it has made “meaningful progress” in strategically expanding its presence in the high-net-worth channel, placing five funds across eight channel partners.
PE’s listed firms remain largely optimistic that fundraising will accelerate in the second and third quarters. In addition, not all segments of the LP community have been affected by the denominator effect and liquidity constraints that have caused a slowdown in investor allocations.
“In the Middle East and Asia, sovereign wealth, insurance, in particular, you find investors aren’t struggling with those same issues,” said KKR co-chief executive Scott Nuttall. “In fact, several of them are very forward leaning and trying to figure out how to invest into this environment. So the overall picture is not consistent depending on where you are.”