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Insights into Alternative Investment Managers' Retail Strategy from Q3 2023 Earnings Calls

In the third quarter of 2023, the landscape for alternative investment managers has continued to evolve, shaped by economic trends, regulatory developments, and shifts in investor behavior. As these firms navigate a complex environment, their strategies and outlooks, especially in relation to the retail and private wealth channels, have become pivotal in defining their trajectories. This blog post delves into insights gleaned from the Q3 earnings calls of various publicly-traded alternative investment managers, spotlighting the nuanced strategies being deployed to engage retail investors. These quotes shed light on the firms' efforts, outcomes, and outlooks in the retail channel.

Apollo Global Management, Inc.

  • “In Global Wealth…there are now seven perpetual wealth products in the market today.”

  • “An important component of our capital raising efforts this year and going forward is everything we're building in Global Wealth. This area continues to be a steady march for us as we roll out product, expand distribution, invest in technology and continue to educate the marketplace.”

  • “Individual investors consume product in a different way. To meet this need, we've taken institutional-like offerings and adjusted them into structures for the retail market and, in some cases, design products specifically with the individual investor in mind. We offer seven families of perpetual products today for both U.S. and non-U.S. global wealth investors and have a handful more in the pipeline.”

  • “We believe the benefits that alternatives bring to a diversified portfolio are still widely misunderstood by retail investors and are often equated with high-risk, high-fee products. To combat this mischaracterization, we've leaned in on education through Apollo Academy, which recently crossed the 1-year mark and has more than 10,000 financial professionals registered as members.”

  • “Despite all the progress we've made thus far, it's still early days, and we see a long runway of growth ahead of us in what we view as a massive addressable market. Given our emerging growth prospects relative to more mature wealth platforms, we feel confident in our ability to drive this continued growth, even if faced with a more challenging retail market backdrop.”

  • “As you know, the retail business is all about getting on to more platforms, more bankers, more selling agreements. And for not only [Apollo Aligned Alternative or] AAA, but all our products, [Apollo Debt Solutions BDC or] ADS, [Apollo Realty Income Solutions or] ARIS, this is how we are progressing. This is why…we're finishing up year 2 of our global wealth focus, and we just see so much more positive momentum as we get these selling agreements signed up in place, product by product, area by area, region by region, just huge opportunities.”

  • “What we're trying to do here is similar to what we're doing in the rest of the business. As you know, I've said publicly, certainly for high net worth families, family offices, I think they will be 50% plus alternatives over the next 5 years. And we're seeing that kind of uptake and traction. The difference between where we are and where I think we're going to be is on the education. When we say we're on a platform, one of the big private banks, it may be 5% or 10% of the financial advisers. This is an education, an evangelical activity with more and more converts every day. And so if you take AAA, and I know you premised your question as a complex product, I'll make it an easier product. You can buy the S&P 500 at a 50 P/E or you could buy roughly the same historical return at a much higher sharp ratio and give up liquidity. That is the choice we're actually seeing investors make. And while private markets are something that many on this call and we are very familiar with, the vast majority of investors, thinking back over the 40 years, they've been doing just fine owning the S&P and the 30-year Treasury. And my point of starting where I started is I don't think with the absence of tailwinds people are going to get the same performance. I don't think what I'm saying is all that controversial. We're now just in a period of education where people consider what does the market look like? How do I invest without tailwinds? What does it mean that public markets are less liquid on the way down? What does it mean to have de-banking? And what does it mean to have indexation and concentration? I believe when you look forward at asset management more generally over the next 5 years, I think you're going to see an asset management industry that is continuing to grow in its passive strategies. I think you will see boutiques who offer access to uncorrelated returns or at least nonmarket correlated returns, such as ourselves and others grow. I think the tougher part of our industry, which you're already seeing, is active management. Harder and harder for active managers to produce good returns, certainly in fixed income. I question whether there's any alpha left in publicly-traded fixed income markets and given indexation and concentration, I think it's very, very difficult in equity markets. So I like where we sit. I like our hand of cards. It does not mean, again, we're going to be the biggest or the fastest growing. In the retail market, we want to be thought of as prudent and creative, growing our footprint every quarter, but not spiking it. Taking too much money at a point in time to chase a hot strategy just makes no sense. It ultimately produces concentration risk, which some of our peers have seen by taking too much money at a point in time. Slow and steady, constant build is what we're seeking to do.”

Ares Management Corporation

  • “We continue to benefit from our existing institutional investors who re-up or cross over into new Ares fund products, along with new investors who recognize our consistent fund performance and leadership in managing private assets. We also saw an increase in flows from our wealth management channel, supported by our newly launched non-traded BDC.”

  • “While our core fundraising continues to be supported by expanding within the global institutional market, our strategically important insurance and wealth management channels are also poised for growth.”

  • “Within Wealth Management, our ongoing objective is to market a limited number of core semiliquid institutional quality products through our global wealth management channel. We're well on our way to accomplishing this over the next several years and today, we're one of the largest alternative managers in the wealth industry with over 120 professionals, a footprint across North America, Europe and Asia, 6 products and relationships with nearly every major wirehouse and private bank. We expect to continue adding strategic partnerships and gain market share as we scale each one of these products. After launching our non-traded BDC, [Ares Strategic Income Fund or] ASIF, primarily on one wirehouse in June that has seen steady momentum with approximately $550 million raised in the first 3 months…bringing total AUM to over $2.7 billion. There are 4 additional global platforms that we expect will add ASIF in the first half of 2024. And despite a tough market for real estate fundraising, we continue to see net aggregate flows collectively across our 2 non-traded REITs, including the 1031 Exchange programs.”

  • “In our view, the long-term secular drivers for our business remain very much intact. Both institutional and retail investors continue to seek out higher risk adjusted returns in less volatile and uncorrelated alternative assets.”

  • “We raised in our wealth products alone, so not looking at our traded product…we did about $1.7 billion in the third quarter, obviously, with good momentum on ASIF with only the one platform. I would expect…given the attractiveness of the product at this moment in time in our BDC track record and leadership in private debt that adding those platforms is a pretty good read across. We'll know it when we're in those platforms just how much they scale. But I think there's a pretty significant amount of pent-up demand and respect for the brand in that channel. And so I think that's a good starting point to expect that it would be a good read across.”

Blackstone Inc.

  • “The private wealth channel also remains a tremendous long-term opportunity for the firm.”

  • “Virtually all customer channels are increasing their allocations to alternatives over time, many in a material way.”

  • “In Private Wealth, we raised $3.3 billion in our perpetual vehicles in the third quarter, led by [Blackstone Private Credit Fund or] BCRED."

  • "For [Blackstone Real Estate Income Trust or] BREIT, while sales remained muted due to the environment at $724 million, repurchase requests have declined materially, down nearly 30% from Q2 and nearly 60% from the January peak. BREIT's largest share class has delivered 12% net return since inception, approximately 7 years ago, nearly 4x the public REIT index. Meanwhile, all investors [who] have been submitting repurchase requests during the proration period have been substantially redeemed in 6 months or less. BREIT's semi-liquid vehicle has worked exactly as intended by providing liquidity for investors in a deliberate and thoughtful way while protecting performance."

  • "Blackstone has established the largest private wealth alternatives platform in the world. Now in addition to our perpetual strategies in real estate and credit, we're extending our leading franchise to include private equity with the launch of a new perpetual vehicle, [Blackstone Private Equity Strategies Fund or] BXPE. This diversified vehicle will leverage the firm’s unique breadth of investment capabilities across the PE spectrum, including buyout, secondaries, tactical opportunities, life sciences and other opportunistic strategies. We are working with several distributors and expect inflows to start early next year. We’re excited to add this new vehicle to our product lineup and remain optimistic about our long-term growth trajectory in this vast and underpenetrated channel.”

  • “BXPE is structured a little bit differently, which means the universe is a little more limited, but I would say is still very large. We think the response to this, a more accessible private equity vehicle that offers private equity secondaries, tactical opportunities, growth, life sciences, opportunistic investments, we think this is going to be very attractive. So the short answer is, yes, a little bit of a different structure. But I think the bigger answer is we think the TAM for this is quite large and we think this can scale up quite a bit.”

  • “The vast majority of our clients continue to increase their allocation to alternatives across institutional, insurance and individual investors. And despite the environment, we still see a lot of interest.”

  • “…[I]n the individual investor channel…there’s $80-plus trillion in that market of individuals around the world with more than $1 million of investable assets. We think they’re allocated in the low single-digit percentages to alternatives today...I think there are opportunities around the world. And I think some investors will do drawdown funds. I think many more will do these semi-liquid products. And as long as we produce outperformance and have structures that work for them, I think the opportunity remains very significant. And so, our long-term confidence in the private wealth channel is significant. The fact that we have nearly a quarter of our firm's assets there - much, much larger than anyone else. An enormous amount of relationships with financial advisers around the globe and underlying customers, 300 plus people on the ground. We just elevated a new head of our Asia region. We think there's a lot of opportunity here. Markets go up and down, but the long-term opportunity for individuals coming to alternatives remains quite significant.”

  • "They may be more hesitant in a more volatile market, but their desire to allocate capital to Blackstone actually goes up when we outperform. And when they get confidence again, they come back to us if they're institutions, insurance companies or individual investors. So that's what gives us a lot of confidence about the future. Projecting what's going to happen in the next month or 2, that's, of course, very challenging."

  • “I think it's hard to overstate the power of the Blackstone brand and what that means to financial advisers and individual customers. This is not a decision. When somebody thinks about putting $50,000 in a nontraded BDC, that's a significant decision. And the Blackstone brand means a lot.”

  • "For us, delivering for customers, the strength of the brand, the performance, the relationship with financial advisers matters. And I would point out, unlike the institutional business where there can be thousands of players, if you think about our large distribution partners, I think they're unlikely to put very significant numbers of players on their platforms in these different areas. So if you think about in credit or in real estate or in private equity, I think there'll be a handful of players. I think we'll have a slot in each of those and we have these really deep long-term relationships and we're delivering for the customer. So yes, the market is getting more competitive. There are other entrants, but we think we have some things here that are very differentiated. And I think we've done a particularly good job in BCRED, where we've deployed the capital, I think we're going to do quite well. Even as the environment gets more difficult because we focused on big companies at much lower loan-to-values on average 43% at origination, we think that will make a real difference. And when we outperform and you do that against our brand, that tends to be a powerful combination.”

  • “One of the unique things about Blackstone is the scale of our private equity platform, it's not just one area. And when you think about the individual investor channel and money coming in on a monthly basis, having a very broad platform is important. So we're going to take advantage of our platform as we deploy capital. And the key thing is we design [BXPE] to deliver strong returns to the customers because that's how we build something of scale over time. So if we do a very good job deploying into this dislocated environment, build a track record, then we do believe the scale opportunity is significant.”

Blue Owl Capital Inc.

  • "In the wealth channel, we are continuing to see solid interest in our strategies with steady increases again in our fundraising levels quarter-over-quarter. We believe that will continue to build on itself through the end of this year and into next year. We are very excited about where we can be next year."

  • “Quarter 4 is expected to be a strong one from a fundraising point of view across wealth and institutional. We're seeing terrific strength in wealth, continue to grow there”

  • “We feel like we have very good momentum in the wealth channels quarter-over-quarter increasing. And we think we have very good prospects, if not very strong prospects for what we're going to see in the wealth channels in 2024.”

Brookfield Corporation

  • "Across both our asset management business and our scaling insurance solutions business, the franchise is capturing increasing allocations from institutions, pension plans, sovereign and individuals towards real assets and private credit. And the increasing allocation of alternatives is coinciding with our growing retail and wealth distribution channels, which today are raising approximately $800 million a month and should grow to $1.5 billion a month by mid next year from retail and wealth distribution only."

  • "The flows [from the retail wealth channel] are fairly -- they're diversified across products. They're not flowing into one single product. They're flowing predominantly right now through credit and into infrastructure. And I think we will be careful to moderate inflows to make sure we can match that against investments that match the return criteria and yields of those products. But so far, we see a tremendous investment opportunity, and we can match those inflows with deployment opportunities."

The Carlyle Group Inc.

  • “The Carlyle brand has always been received well in the private wealth channel, and we're building on that momentum. We have raised over $45 billion from this channel over time. And this year, we have raised more than $3 billion. I feel good about this channel given the strength of our brand. Over the coming quarters and years, we expect to accelerate product development and see further growth in sales and distribution. There's a lot of upside in private wealth, and we expect our footprint to be significantly larger in coming years.”

  • "We're going to be exceptionally disciplined. I think the other thing is it just creates a lot of operational flexibility to invest in growth. And growth areas like wealth, parts of credit, insurance, those are areas where we're going to make sure that we have the resources to participate. But it gives us a lot of operating flexibility."

  • “I'm really enthusiastic about [private wealth] as a long-term area of growth for Carlyle. We've had products in the market for a long time. As I mentioned, we've raised $45 billion across closed and evergreen funds. The wealth team has grown pretty substantially, but there's more work to do on product development, growth of the team. We're investing quite heavily. I'm personally spending a fair bit of time in this space. And it really became a big initiative for me in…month 6 or month 7. And I feel very optimistic here. I think as an industry, we have to be really thoughtful as capital continues to migrate into the sector. I think if you look at the wealth assets around the world, which we all expect will continue to grow, it's a very small percentage in alternatives. So this is going to play out over a decade. But as this growth happens, I think Carlyle, the brand recognition, the history of the firm, the historic presence of the founders, David Rubenstein is a brand in and of itself. I think these are…additive, powerful things that provide momentum for Carlyle, but it’s going to play out over years. I think most importantly, we just have to have the right products to ensure that the wealth investor gets really high performance. And that's what we're focused on.”

Hamilton Lane Incorporated

  • "Our blended fee rate across the platform also continues to increase. This stems from the continuing shift in the mix of our fee-earning AUM towards higher fee rate specialized funds, most notably our Evergreen products where growth is strong."

  • “Let's turn now to our Evergreen Funds, where growth remains robust. We continue to witness strong demand coming from across the globe as the non-institutional channel continues to seek out access to the private markets via our semi-liquid funds. As of the end of September, total AUM across the Evergreen complex stood at nearly $4.9 billion. For the first nine months of calendar 2023, we are averaging net monthly inflows of nearly $160 million across the entirety of the platform. For our U.S. private markets offering, we continue to generate solid traction with the wirehouses that we’ve been onboarded to earlier this year. As of the end of September, we’ve generated nearly $440 million of flows and have achieved that level of success in just a few short months of being live on those platforms. Our success demonstrates our strength in providing access to the private markets for the non-institutional investor. We believe that we are still very much in the early stages of this exciting business, and look forward to expanding our presence in this space.”

  • "G&A increased $7 million, driven primarily by revenue-related expenses, which are the third-party commissions related to our U.S. Evergreen products being offered on our wirehouses…the flows that come in through the wirehouse channel have an associated upfront fee from the dollars raised there. That payment is made and applied to the total amount when those dollars close into the fund. However, the corresponding management fees we earn from those same dollars come in over the course of the year for as long as the client is invested in the fund. It creates a timing mismatch between the cost of bringing those dollars on and the revenue associated with those flows. It causes our G&A to increase with the eventual offsetting revenue to come in during the subsequent quarters and years. Said more simply, we bear the full cost upfront and then receive our revenue over time."

  • "…[T]hese [Evergreen] products that we have on the platforms are having great success, and so we fully intend to expand the product offerings. As you're aware, we have a credit offering outside the United States on those platforms, so we have already expanded. And we look at it and think that we will have an additional number of offerings. But really, it’s a function of making sure that we have the right investment [products] that both the platforms want and in which there’s space to provide them. But we would expect that we will continue to be providing products into that platform and expanding our own platform there."

  • "I think everyone is looking at developments in that [ticker subscription] market. What does the market want? And clearly, as you see in our numbers, the market wants what we're offering. So…do we need to change that in order to increase demand? We just haven't seen that need. With that said, I would expect that you'll continue to see innovation around the kinds of things like you described where either it's necessary or the market requires it. But as I said, in terms of the existing products we have, we've not had much demand for people saying, if you tweak it this way, you will get more incremental demand. You've seen the flows. They're healthy, and so I would not expect any time soon that we're going to be changing that. But sure, products looking forward, I think as the markets change, we will certainly change"

  • “We're thrilled with the success we're having, particularly with the wirehouses, but that does come with that kind of upfront cost and then kind of the revenue coming later. So I think what you're seeing with margin right now, I think is actually noteworthy. In an environment where we're certainly seeing margins falling across peers in the market segment, I think the fact that we're holding steady with this growth and with those upfront costs, I think is noteworthy and sort of shows that I think management is doing a good job on sort of managing all of those dynamics. Going forward, you would say in a vacuum that margins could be rising as…you've now paid the upfront cost and now you're just benefiting from revenue. That would be a margin enhancer, particularly given the margin on this product. That said, I think management's focus here continues to be on growth and investing in product expansion, continuing sort of building out of the sales force. So I think our focus today is not on can we increase margins further, it's how can we continue to invest smartly in the business to make sure that we're continuing to put up these significant growth numbers.”

  • “The team continues to build in the U.S. and outside the U.S. And our focus is just putting the product in as many locations as we think makes sense. You want to make sure you're doing that in a way that not only are you adding on to those platforms, but in order to be successful you have to actually support it once it's there. There's a tremendous need for education, customer support and the like. So I think we view this as really a marathon and the race is just getting started. So while we're thrilled with the success that we've had and we're thrilled that we're already on some wirehouses, as you look forward, I think what you should expect to see is addition of more distribution partners and an addition of more product and a continued kind of reinvestment in our resources around all of those areas. But again, I think from management's perspective, we're viewing this as this is a long road, which is exciting. That's one of the big growth drivers we see as the future of the business, but this is all not going to be coming in tomorrow.”

KKR & Co. Inc.

  • “Across our private wealth strategies, while still early, our momentum is strong, and our conviction around the size of the addressable market and our ability to take share continue to grow. And in the framework of KKR, this is really all upside for us from here.”

  • “Looking at the quarter in a bit more detail, first our K-Series suite of products. As a reminder, these primarily serve the private wealth end market globally, providing individuals with access to alternative investments that traditionally have not been accessible to non-institutional clients. We now have vehicles for all four of our major asset classes: private equity, infrastructure, real estate, and credit. And we continue to be added to more private wealth platforms as these vehicles ramp. Two years ago, we were on approximately 10 platforms…today, that number is closer to 40 across the suite of products that we manage, with more to come. Looking at our private equity and infra wealth products specifically, they are now raising approximately $500 million a month. It’s a really strong start for us, especially relative to our expectations, only reinforcing our confidence in the scale and impact of the long-term opportunity here."

  • “In direct lending, where we have $36 billion of [AUM], you're seeing us raise capital in a variety of forms. In the quarter, we raised capital for our U.S. focused strategy in traditional fund format and through evergreen structures in both the U.S. as well as in Europe. We’re seeing more interest in these perpetual vehicles as the asset classes become more mature and a more permanent part of institutions’ allocations. And we’re at the outset of fundraising for our private BDC and continue to raise capital in our separately managed accounts.”

  • “In addition to the positive outcome for our Asia private equity investors, the IPO also helps our branding across everything that we do in Japan and likely as a result also creates more opportunity as we distribute K-Series products in this market.”

  • “The main takeaway from what you're mentioning is the focus we have on broadening the funnel at the top end, and we're going to be focused on the wirehouses here in the U.S. We're going to be focused on independent broker-dealers. We're going to be focused on broad private wealth internationally. And the products that we've created are ones that are going to be designed and tailored for those markets, different markets geographically, and again, with a focus on broadening the funnel as much as we can. One of the topics we've been particularly focused on was making sure that we could appeal not only to the qualified purchaser market, but the accredited investor market. Again, the accredited investor market is eight or nine times the size of the qualified purchaser market. So again, that's just one example of a focus for us, is, again, just wanting to broaden that funnel at the top end as much as we can.”

  • “90-plus percent of our distribution today is through the bank and broker-dealer channel. We feel it's this channel that's most prepared to be able to deal with wherever the regulations come out. But, I think it's important to note that fundamentally we support what the regulator here is trying to accomplish. They want to make sure that consumers get the value they're paying for when they buy an investment product, and I think that's good for everybody in this space. So, punchline, no material issues, and we continue to work very closely with the GA team to continue the momentum there.”

  • “Private Wealth is newer for us, so we have a lot of upside ahead of us.”

StepStone Group Inc.

  • “Shifting to Private Wealth. The fiscal second quarter was our best quarter ever, with over $350 million of new subscriptions. We've invested heavily in private wealth and these investments are paying off. We anticipate that this will be a significant contributor to operating leverage over time. As we announced in July, [StepStone Private Markets Fund or] SPRIM, our core private markets Evergreen Fund became available for subscription daily by a ticker. This allows investment into the fund without the need for subscription documents, simplifying the onboarding process and eliminating a substantial point of friction. The ticker has contributed to the acceleration of gross inflows, but encouragingly, we are seeing traction across all of our private wealth products and four pillars of distribution. [StepStone Private Venture and Growth Fund or] SPRING, our Evergreen Fund for venture capital and growth equity continues to gain momentum. And in September, we held an initial close of [StepStone Private Infrastructure Fund or] STRUCTURE…Finally, I'm pleased to announce that SPRIM has been approved on a second wirehouse, and SPRING has been approved on its first wirehouse. In each case with initial inflows expected in the coming months.”

  • “We have now surpassed $2 billion in assets under management [in private wealth]. To put our growth in context, we first launched our private wealth platform in September of 2019 and crossed the $1 billion threshold in November of 2022. This was a great result for a product suite and distribution network that we built from the ground up. We are thrilled to have grown the platform by another $1 billion in only 10 months, doubling the net asset value in less than a third of the time it took to raise our first $1 billion. Our success in private wealth is driven by progress across our 4 distribution pillars: RIAs, independent broker dealers, wirehouses and international, and by the launch of additional funds such as SPRING and STRUCTURE. Each subsequent fund launch and each expansion of our distribution syndicate is bolstered by a growing brand awareness and by our strong track record of investment performance. SPRIM has generated a 25% annualized return since inception, and SPRING has yielded a 30% return in its first 11 months. STRUCTURE had its initial close in September and is actively investing.”

  • “The team is by far more built out in the U.S. relative to abroad on the dedicated Private Wealth team. And so, flows are definitely stronger here in the U.S. today. We expect that will balance out over time as we continue to invest in the distribution partners abroad. In terms of the flows between the products…SPRIM U.S. is the most seasoned of all the products, it's the largest of all the products to date. And so therefore, there's a bit of size to get size. You're eligible for inclusion by more distribution partners, and so therefore that's certainly helpful. And when I look at the kind of day zero comparison, SPRIM versus SPRING, SPRING is off to a very strong start. Clearly, the performance there is definitely helpful at 30% since inception. And so, we do expect that to continue to scale nicely. STRUCTURE, it's simply too soon to tell. We're just a couple of months in here, but conversations have been positive.”

  • “On the ticker…it's been welcomed with open arms. Certainly by the RIA community in particular, it definitely makes their life materially easier. We expect IBDs to, some of them at least, use the ticker. I think the wires will be the last there to adopt and don't have a real timeline as to when that might be. In terms of the kind of…brand education cross-sell, if you look at the different channels, I would kind of cite the following. If I look at the distribution syndicate for SPRIM…about a third of those distribution partners have also come in to SPRING. And then conversely, if I look at the SPRING distribution base, over 2/3 of those are SPRIM distribution partners as well. So clearly, the brand awareness helps…if you like the StepStone story across private markets, you're going to like it in venture and growth specifically. So again, STRUCTURE it's too soon to tell, but we'd expect to see a similar pattern.”

  • “But certainly, landing that second wire is something you've been asking me about for some quarters now, and we were delighted to be able to announce that this quarter, and we expect to see some acceleration of growth across Private Wealth with this new partnership in place.”

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