As the global economy recovers from the pandemic, alternative asset managers are seeing strong growth across key metrics — including fundraising, assets, and fee-related earnings — with the trend expected to continue.
According to Moody’s first quarter report on U.S. alternative asset managers, released this week, total fundraising for the four largest publicly traded managers — Apollo, Blackstone, Carlyle, and KKR — during the quarter rose to $67.3 billion, a 22 percent increase from the same time a year ago, while total assets under management climbed 36 percent over the same period.
Of these, KKR had the strongest growth, more than doubling its capital raising to $14.6 billion, followed by Apollo, which saw a jump of 84 percent, raising $13.4 billion. It also added $73 billion in assets due to acquisitions by its insurance partners Athene and Athora.
Net performance revenues increased by about 82 percent for the four firms, due to strong financial markets and improved economic conditions.
A large part of the revenue growth is linked to the industry gravitating more toward a recurring fee structure, including partnerships with insurance companies, as opposed to realized performance fees, which are less predictable.
“The alternative asset managers are in a sweet spot,” said Dean Ungar, a senior credit officer at Moody’s who wrote the report. “Insurance companies need higher returns and alternative asset managers need recurring fee income, so this is a good marriage.”
With the disruption brought on by the pandemic, the strategy proved to be even more beneficial.
“It was the natural place to go,” Ungar said. “As these companies evolve, [the alternative asset managers] want to present a product that is going to have more stable recurring earnings.”
There is also an increasing trend in the industry where a larger part of AUM is dedicated to perpetual and permanent capital in nontraditional ways: Instead of returning capital to limited partners, the funds are reinvested. Apart from insurance companies, these vehicles include real estate investment trusts, business development companies, and retirement services.
“[Fee-related earnings] is the more grind-it-out aspect of the business; it reflects the success of each of the companies in building out products, expanding the base of LPs, and generating a more sustainable, predictable earnings model, with emphasis on predictable,” Moody’s said in the report. “It is FRE that most excites debt investors (and equity investors, too).”