By David G. Barry
If there’s one
takeaway from the second-quarter results of eight publicly traded investment
firms, it’s that they are well positioned to take advantage of investment
opportunities arising from the current economic uncertainty.
Together, Blackstone, KKR & Co. Inc., TPG Inc., Apollo Global Management,
Ares Management Corp., Brookfield Asset Management, EQT AB and Carlyle Group have a stunning $707 billion to invest
– a figure that is expected to rise given the slowing investing pace and the
fact that they must continue to raise funds to generate fees. The firms’
uncalled capital is spread across a variety of investment segments, including
private equity, credit, real estate, and infrastructure.
On the flip side, these totals also help illustrate the issues that many
institutional investors are facing with their private equity and other private
market programs.
With many firms returning to raise funds much earlier than expected, pension
funds, endowments and others have found themselves up against their allocation
targets. At the same time, they are now waiting for managers to call down the
capital and deploy it.
Dealing with uncalled capital is a part of investing in private markets for
institutional investors.
A case in point, for instance, is Maine Public Employees Retirement System
(MainePERS), which had $3.5 billion, or 19% of its $18.3 billion fund, allocated
to “unfunded commitments” to total alternatives. Private equity accounted for a
third of that total at $1.3 billion.
In an interview with Markets Group, MainePERS Chief Investment Officer James
Bennett said that “on its own, the 19% is a big number, but we do have a 47.5%
allocation to private assets. Our models generally suggest targeting an
uncalled amount that is 50% of the target allocation – i.e., we need to commit
$150 to have $100 (net asset value).”
Industry tracker Preqin had estimated that the investment industry – excluding
venture capital – had $1.86 trillion of dry powder at the beginning of June.
That’s up from $1.81 trillion it had at the end of 2021. Buyout firms,
meanwhile, had $873 billion in June – up from $870 billion at the end of 2021.
Blackstone,
with $170.1 billion in dry powder, accounts for nearly a quarter of the capital that the eight firms have to invest. At the end of the first quarter, Blackstone had
$139.3 billion in dry powder. Perhaps most notably, the $170 billion represents
half of the $340 billion that Blackstone has brought in over the past 12
months. The firm is seeking to raise $150 billion in 2022.
In remarks on the second-quarter earnings call, Jon Gray, Blackstone’s president
and chief operating officer, said that with the firm’s four “powerful engines
of growth and record dry powder capital to invest, we are ideally positioned
for the road ahead.”
Brookfield also said it had a record level of capital available to deploy to new investments. The firm said it had total investable capital of $111 billion, which includes $74 billion of uncalled capital commitments and $37 billion of cash, financial assets and undrawn lines of credit.
Another firm with record dry powder was TPG. It ended the quarter with $39 billion to deploy.
The firm’s CEO, Jon Winkelried, said during his firm’s second-quarter call that
the $39 billion represents 59% of TPG’s fee-generating assets under management.
“With this large pool of dry powder, we believe we are well positioned to
deploy capital in this increasingly favorable investment environment,” he said.
“We expect to see more attractive investment opportunities across our core
sectors and themes as sellers adapt to reset valuations and markets stabilize
in the coming quarters.”
KKR had the second-most dry powder at $115 billion – the same amount that it
had at the end of the first quarter. Apollo, meanwhile, had $50 billion of dry
powder, up from $48 billion at the end of the first quarter. Of that $50
billion, the firm said $35 billion has future management fee potential. Ares
has $91 billion of available capital, or almost a quarter of the $334 billion
it has under management.
EQT said it expects to have more than $50 billion to deploy based on fundraising activity.
The only one of the eight firms whose dry powder declined was Carlyle, falling to
$81 billion from $85 billion.
In remarks on Carlyle’s second-quarter call in late July before he stepped down
as CEO a week later, Kewsong Lee said that the firm had been preparing for the
“complex and challenging environment” brought about by inflation, rising
interest rates and uncertainty in the economic and financial markets by
focusing on “continuously assessing risk, recalibrating valuations and
capturing opportunities as we move forward.”
He said that “the strength of our diversified platform, well-constructed
portfolios and over $80 billion of dry powder positions us well.”