Business Breakdowns
· Josh Clarkson
[00:00:00] S1: You mentioned that stat earlier, about $20 trillion-ish AUM in alts, which sounds right to me. I do think the winners here though will not be evenly distributed across that $20 trillion. It will be the bigger scaled firms, the Blue Owls, the Ares, the Apollos, the Blackstones of the world who have the breadth and scale to both offer top-tier products across a range of functions and build out those sales forces to really go after that opportunity in a really concerted way. Take a firm like Oaktree, for example, which while primarily being focused on the institutional channel for many years has built a very strong public brand anchored in their founder Howard Marks and his memos and his thought leadership. But that has percolated through the firm and they really have a much higher level of public awareness than many other similarly sized institutionally-oriented credit-focused managers do. And that's certainly a huge asset to them and their partners at Brookfield, and as they're building that business out for the retail channel. There's going to be an important role for managers that are really good at a certain thing, like a Kennedy Lewis in non-sponsor lending, something like that, where you're bringing something that is complementary and different to the table. I do think there's a role for that as well, especially with the more sophisticated consumer who maybe already got their initial direct lending exposure, is looking for more private credit exposure, but not the same exact return streams. Terribly niche strategies and smaller non-scalable strategies are not amenable to this treatment. And very often the firms that invest that way are not going to have the scale to really build that out. And this has been a continuing trend for a while in the private markets and alternative space that the big keep getting bigger, for lack of a better word. I think that will continue. You've also seen a lot of partnerships struck between traditional asset managers who have the distribution footprint and in many cases the 401k platform, and the alternative asset managers who have that private markets investing capability. Now a lot of those are pretty early days and we haven't really seen the results.
· Josh Clarkson
If I had to guess, I think you'll probably see a dispersion there in terms of who really gets it humming and delivers the right product to the right people with the right performance and gets scale and who maybe for whatever reason it doesn't flow that well. The incentives aren't perfectly aligned. There's some stuff that's done through the partnership, there's some stuff that is done ex the partnership and that might gum up the works. Some of those will certainly be successful, some of them may not be. But it's really too early to pick winners and losers there as they're all very nascent right now. If you're a long only or traditional active manager that doesn't have that scale, this is just one more headwind you're facing. I think in many ways it exacerbates or amplifies a lot of the trends that were already going on of returns accruing to scale. Similarly, even on the RIA platform side, the bigger, more scaled wirehouses and RIA platforms are going to have better access to this product, better ability to suss out all the back office stuff that needs to happen so the client has a seamless experience investing in this product in a way that the one to two person solo practitioner financial advisor who is on independent BD platform, or even a smaller platform or just doesn't use a platform, use like a Schwab or something, it's going to be harder for them to do that. So I think that's going to be another one of those. The bigger get this product and get more access to it, get more diversified offerings and have the scale to do it right and the smaller ones, if they're going to do it, it's going to be a much bigger relative lift for them in terms of commitment of their resources. Hopefully the end winner here is the investor who now has access to a better, more diverse range of investment options and I'd say in many cases has access to the same investment options that defined benefit pension plans have had. You don't think of them as investors because they're not picking and choosing what happens. They're just getting their pension check. That was the start of alternative asset management. They've benefited from this for decades. A lot of people should benefit here. But there will be folks who see the headwinds that are already facing their business amplified by not being able to capitalize on this opportunity.
· Matt Reustle
[00:00:00] S0: Or solving the inequality issue at the individual level, but maybe worsening the inequality issue at the alternative manager level.
· Josh Clarkson
[00:00:00] S1: A lot of it is also brand because when you're marketing in this channel, you need brand in a way that you don't in the institutional channel. In the institutional channel, as long as the right few hundred people or few thousand people in the allocator world think well of you and your performance is good, that can build an absolutely incredible business. Whereas in this channel you do need people to know and recognize and trust your brand, you need to build up that brand. I mean, Blackstone's been very loud about this. They have TV ads now. They speak about this at length on their earnings calls. And I think most of the rest of the large public managers are doing this as well. Blue Owl has certainly done an amazing job with this out of the gate. For some of those more specialized firms who are real specialists in a sector, have the performance that might be better than the big guys but aren't really terribly well known outside of the allocators, sponsor coverage, bankers and people like me and you that are very close to the markets, they need to find smart ways to invest in that because they're not going to have the same budget that Blackstone does. So they need to find the right spots to build that overall brand so people know you and think, oh good manager of money, but then also build that reputation in that niche. Those offerings that you're selectively going to pursue and explain the story of why you are better positioned to deliver it than more of a private market supermarket.
· Matt Reustle
[00:00:00] S0: It certainly makes me revisit some of those marketing initiatives which I admittedly scratched my head a bit when they were going on. I talked myself into them becoming bigger and needing to have more connective points into the business people of the world. But now I think you could see exactly what was going on there on the earlier point that you made just around positioning. If I step back and kind of evaluate what you were saying there, it feels like the credit franchise for any of these big alternative asset managers is really one of the biggest things here. If you're to take a huge alternative asset manager without a strong credit franchise, they could be left a bit behind just in terms of positioning or they're not as well positioned. Is that a fair conclusion from what you were saying?
· Josh Clarkson
[00:00:00] S1: I think it's a very fair conclusion. That is true in the broader world of institutions as well as credit has just become a bigger part of the private markets mix. Having the best vehicle for wealth is one of many reasons why having a really strong credit arm is essential to being a multi-strategy private markets manager today. But I'd say it isn't necessarily the only or primary one. You'd be hard pressed to find what most people would consider a mega fund private markets operator that doesn't. Just from my public observations, you saw TPG go public and then very quickly add top tier credit capability in Angelo Gordon and that integration seems to be going very well. You've even seen folks like Blue Owl who came to market with a really strong direct lending offering that was their calling card, that remains their forte, add those other pieces of the credit puzzle such as digital infrastructure, asset based, to really deliver the comprehensive credit offering that you need today. So I definitely think it's true that you need a top tier multifaceted credit offering to be a large diversified. You can still be a very successful business without one. But to really hit on all cylinders, I do think you need that. Most of them have that and have seen that writing on the wall for some time.