Second-quarter earnings revealed private equity’s publicly traded firms were able to push through market volatility.
It wasn’t an easy time: macro headwinds that included extremely high levels of inflation, rising interest rates and a slowdown in capital markets activity meant raising new capital from institutional investors was becoming more challenging.
“On the fundraising front, it is getting harder out there,” said Blackstone president and COO Jon Gray in response to an analyst’s question about the fundraising market. “It’s particularly tough in North America private equity with institutions. And I think you’ll probably hear about more of this from others in the industry, both public and private participants.”
“No doubt the fundraising environment is challenging right now, and this could persist for a bit as LPs adjust to the market dynamics,” said the Carlyle Group’s former chief executive, Kewsong Lee, on the firm’s results call, a few weeks before his sudden resignation in August. “It’s most challenging in [the] corporate private equity segment of the market.”
Taking a step back from the gloomy outlook, one theme dominates the listed giants: each of them is becoming meaningfully more diversified as an asset management firm. For KKR, 65 percent of new capital now comes from its real assets and credit business. At Carlyle, global credit, infrastructure, renewables, secondaries and co-investments, meanwhile, account for more than half of fundraising.
Newer business lines and adjacencies are also a focus. For Apollo Global Management, scaling global wealth is a strategic priority. It announced the launch of Apollo Aligned Alternatives at the end of Q2, with $15 billion of invested or committed capital. CEO Marc Rowan said of the new unit: “What we seek to do in AAA is to produce equity-like returns with fixed-income-like volatility.” He added that he sees the product as a “replacement” for S&P 500 exposure in the equity portfolios of retail investors.
TPG, which listed early this year, is set to capitalise on opportunities presented by the Inflation Reduction Act of 2022, which was passed by the US Congress in August. The firm, which recorded $39 billion of dry powder as of the end of Q2 – its largest ever amount – sees the bill as a driver of investment. While the firm’s immediate focus is on climate private equity, it expects to grow into clear adjacencies across the likes of infrastructure, credit and public-private crossover investments, said executive chairman Jim Coulter.