Asset managers continue their aggressive push into private markets as organic growth in traditional stock and bond funds has essentially stalled.
Revenue growth at traditional firms in 2024 was mostly driven by market gains rather than new money, with U.S. equities and fixed income both performing well last year. According to new research by asset management strategy consultant Casey Quirk, assets under management were up 12 percent for the median firm, but that lagged the S&P 500’s 25 percent growth from 2023 to 2024 and a 16 percent average increase for traditional 60-40 portfolios.
This means that a median traditional manager had an average of 0.1 percent organic growth over the course of the year, evidence of an over reliance on market appreciation. Alternative firms, on the other hand, saw 1.4 percent organic growth in the same period. This goes some way to explain increased interest in attracting retail money with private-public joint ventures of late.
Although the growth in alternatives is making traditional asset managers pay more attention to these markets than ever before, the opportunity is adding new complexity that firms will need to face in managing private market assets and public securities.
“The main message is the continued performance in economic terms of private markets managers and how that is driving traditional managers to move more aggressively into the private market space, which is becoming much more complex, and creating difficulties around the operating platforms,” said Anthony Skriba, data analytics and strategy manager at Casey Quirk. “Creating and finding scale is becoming more difficult. In fact the environment had been getting more complex even without this new interest.”
Skriba said regulations, both within the home market and overseas, add complexity as firms diversify geographically. Still “Everyone is trying to find ways to democratize access to private market investments, so that's also been a strong area of growth, and there's a lot of opportunity and promise there,” he added.
In addition, the research found that operating expenses like technology, legal, and marketing increased by 7 percent for the median firm as managers ramp up efforts to attract retail clients and deal with the added complexity.
Managers, both traditional and alternative, are looking for resiliency by expanding capabilities and diversifying their sources of revenue.
Collin Roche, Co-CEO of GTCR, a private equity firm that also invests in asset managers including Allspring, said that despite what this data might imply traditional management continues to deliver real value, pointing to alts managers like Apollo that themselves do a lot of traditional asset management.
The differences between public and private have narrowed, especially in credit, said Roche. “The point on the distinction between alts and traditional is more appropriate in credit and similar yield products because there is a blurring of the lines... And direct lending isn’t that different than syndicated, really, now that this market has matured,” he said.
“What's very different about traditional private equity is that it is just a tremendously illiquid asset class. While there are efforts to change that with private credit CVs [continuation funds] and secondaries and other creative ideas, fundamentally, it's still pretty different than the exposure you have if you buy a mutual fund or an ETF or trade listed stocks.”
Any structures that are being put out there must take into account how to deal with inflows and outflows into what is both illiquid but also very lumpy, he added.
“I think maybe in the long run it's true they [public and private] are converging, but I think there's still some pretty material differences,” he added. “There are also some regulatory concerns and issues with who can buy into some of these retail alt structures. It's something we're very focused on. But there's still a lot of work to be done and I don't think the code has completely been cracked on private equity in a retail, liquid format.”
