Manager tie-ups climb as private assets demand soars
Tie-ups between traditional or mostly long-only asset managers and private market players are picking up as more institutional investors and family offices pile into alternative assets, particularly private credit.
One such partnership was announced in late March between BNY Mellon Investment Management and alternatives specialist CIFC.
The deal allows BNY Mellon IM, which has about $2 trillion in assets under management, access to CIFC’s US direct lending strategy on its global distribution platform for clients across Europe, Middle East and Asia-Pacific.
"We’ve seen an uptick in demand from our (EMEA and APAC) clients for private credit solutions, and in particular, for US private credit,” a spokesperson for BNY Mellon IM told AsianInvestor.
"Asian institutions (pension funds, insurance companies, sovereigns, and endowments) are attracted to the strong returns and cash yield of the strategy."
The US is still the biggest target market for private debt investors, although Asia is rapidly building its fledgling private credit industry.
Private debt represents 12% of the current global alternatives universe and is expected to nearly double in size by 2028 to $3 trillion, according to alternatives data provider Preqin.
MORE PARTNERSHIPS INCOMING
This sort of partnership between private market and predominantly public market players, while not new, has gained traction recently.
Nikko Asset Management and alternatives specialist Tikehau Capital announced in December 2023 that they are in advanced discussions to form a business alliance to establish a joint venture dedicated to Asian private market investment strategies.
Nikko AM declined to provide further details to AsianInvestor.
Higher interest rates, downward pressure on fees, the rise of passive investing, regulatory changes and technological disruptions are prompting asset and wealth management firms to look at mergers and acquisitions as well as strategic partnerships to reinvent their business models, noted a pwc report titled Next in Asset and Wealth Management 2024.
“Such transactions enable firms to add capabilities, grow with new asset classes and investor segments or by building new channels to capture more of the investor wallet. Such strategic moves may also create scale and efficiencies,” the report noted.
M&As are already evident in 2024: BlackRock, the world's largest asset manager, in January said it would acquire Global Infrastructure Partners, while Amundi, Europe's largest manager, said it would acquire Alpha Associates, a private markets multi-manager specialist.
TAPPING MORE MARKETS
In Asia, there is also a push by many asset managers to offer private market products to high-net worth investors and family offices, who typically still have very low allocations to alternative assets in their portfolios on average.
Long-only public managers traditionally have much broader distribution networks that includes wealth and retail, whereas private market managers traditionally have been more focused on the institutional investors.
Muzinich & Co
“Public managers might not have the private market capabilities, but they do have access to a broad base of retail and wealth channels – private banks, external asset managers, third-party distributor platforms – and through partnerships, they get access to private markets products and capability to distribute into these channels that take many years to build up,” said Andrew Tan, Asia Pacific chief executive and head of APAC private debt at Muzinich & Co.
The asset manager has capabilities in both private and public markets.
“For private market managers, this [partnerships] gives them access to new pools of capital away from what they have traditionally focused," Tan said.
Apart from the super-large asset managers that have strong capabilities in both public and private markets, most managers find it hard to have strategies that combine the benefits of both.
Having private and public markets expertise allows "a wider playing field depending on where the investment manager sees value (whether public or private) – and also enables semi-liquid strategies which allow for some level of liquidity rather than the traditional locked-up structures typically seen in private markets," added Tan.
NOT PERFECTLY CORRELATED
There are other advantages as well.
"Public long-only market and private market cycles are also not perfectly correlated and perform differently in different economic environments,” noted Christian Mankiewicz, principal, head of portfolio management, private equity, Federated Hermes.
“Operating in both can have business model diversification benefits for asset managers.
"There can also be complementary investment expertise and research findings providing benefits to both," Mankiewicz told AsianInvestor.
"With the increasing proliferation of vehicles providing private market access to the wealth market, e.g. semi-liquid funds, there can be capital raising and operational synergies by traditional asset managers teaming up with private market specialists, benefitting both."
Within the private credit arena, there is a lot of activity going on to increase capabilities in strategies such as lower middle market, non-financial sponsored, structured equity/hybrid strategies that offer diversification away from the traditional upper middle market financial sponsors strategies that have potential for higher levels of duplication in an allocator’s portfolio, according to Muzinich’s Tan.
“We are also starting to see an increased interest in CLOs (collateralised loan obligations), especially the mezzanine or equity tranches which are yielding good returns at this point and real asset strategies (for example, infrastructure, utilities, real estate) that allow investors downside protection in uncertain market conditions,” he added.
Structured credit and ABS (asset-backed securities) opportunities are also being talked about, said Tan.