Investment activity within private markets continues to boom. With alts managers sitting on over $2.5T+ of dry powder and continuing to enjoy premium valuations and interest rates on a precipitous rise for the first time in several years, we expect private credit managers in particular will come to the forefront as attractive targets not only for traditional asset managers looking to penetrate the private markets sector, but also for other members of the private markets ecosystem, such as private equity (PE) firms.
For traditional asset managers, expansion into private credit presents a desirable fixed income product offering that is becoming especially important as equity markets experience extreme volatility. We’ve also seen some traditionals firms with an existing presence in credit look to further expand their capabilities and geographic footprint. A prime example is Franklin Templeton, which already operates Benefit Street Partners, a credit manager with about $30bn in assets under management (AUM), announcing in June the acquisition of Alcentra, BNY Mellon’s European credit arm. The acquisition will approximately double Benefit Street’s AUM and expand its European presence.
On the flip side, private equity firms are no strangers to private credit. Leveraged buyouts have been a significant contributor to the rapid expansion in the private credit markets in recent years and private credit products (e.g., direct lending, CLOs) provide the type of yields PEs demand without the equity risk. We expect private equity acquisitions of credit managers to be on a smaller scale compared to those of traditional asset managers. However, don’t be surprised to see historically pure-play private equity firms evaluating transformative platform investments in private credit, especially as macroeconomic cycles begin to turn.
The recently proposed Securities and Exchange Commission (SEC) rules which tighten disclosures around SPAC-led IPOs, coupled with investigations initiated into several recent SPAC deals and the poor post-listing performance of SPAC-led deals have significantly narrowed the aperture for these. As a result, we have seen several announced IPOs of late stage AWM players stalling or unwinding - these include the likes of eToro, Apex Clearing and Acorns.
“Larger deals could be on the horizon in 2022, as AWM firms search for ways to add product and distribution diversity outside of traditional investing.”
Asset and Wealth Management Deals Leader, PwC US
Principal, Financial Services, Strategy&, PwC US