PEI 300: Perpetual strategies dominate at the large end

Low-risk AUM, and steady, predictable fees are among the reasons why the longer-term approach to fundraising has gained momentum.

The 10-year commingled fund is alive and well at the larger end of the private equity market. The fundraising momentum, however, lies elsewhere: with perpetual
capital strategies.

This year’s table-topper, KKR, added $150 billion of perpetual capital in the year to end-September, equivalent to one-third of its total assets under management and an 8x increase year-on-year. This was in part due to the acquisition of Global Atlantic, which added $70 billion of AUM to KKR’s balance sheet and gave the insurer access to yield-boosting alternatives investments.

The figure does not include KKR Core Platform II, which has raised $12 billion of its $16 billion target to invest over the long term in low-risk, cash-generative assets. KKR’s Core PE portfolio has “many of the right attributes to outperform if we go through a period of volatility and real inflation”, including having “real pricing power”, CFO Robert Lewin said in early May.

Meanwhile, nearly half of Blackstone’s $148 billion in inflows during the 12 months to October – $47 billion in the third quarter alone – was perpetual in nature, coming via 16 vehicles across multiple asset classes.

The same firm has also used secondaries technology to boost its perpetual capital business. In February, it completed a €21 billion recapitalisation of European logistics company Mileway, in which existing investors were given the option to sell, roll, or roll with an increased stake. The perpetual Blackstone Core+ real estate fund also backed the deal, effectively turning a company acquired by a closed-end vehicle into an evergreen asset, as it did with life sciences business BioMed Realty in 2020.

Blackstone has taken minority stakes in insurance businesses and done deals to manage the firms’ capital, but has no plans to buy one outright: “We want to run a business that’s asset-light. We have a very small balance sheet, virtually no net debt and no insurance liabilities,” president and COO Jonathan Gray told Private Equity International in March.

A new course

The advantages of perpetual capital are clear: the periodic rigmarole of launching and raising funds is made unnecessary, it adds low-risk AUM, and generates steady, predictable fees. It also removes the pressure to sell good companies just because a vehicle is getting towards the end of its life. Not everyone, however, is jumping aboard.

In March, EQT – up three places in this year’s ranking – agreed to acquire Baring Private Equity Asia in a €6.8 billion deal. When asked by PEI about the big price tag of the deal, chief executive Christian Sinding said EQT was sticking to its buyout lineage, and that those skills cost money to acquire.

“There’s a race for a trillion [in AUM]… we are not going to be part of that,” Sinding said. “There’s a huge need for private capital in these more commoditised products, but then you have to be huge. The way Blackstone is doing it, they’re scaling in every product. I’ve a lot of respect for a lot of them, but it’s a very different business.”