Alts managers cutting back on fundraising targets

Several alternatives managers said they are cutting back fundraising targets for flagship funds amid a difficult investing environment.

TPG Inc. is reducing the size of its flagship funds in the market to a combined target of $23 billion or $24 billion from a combined $27.5 billion, said Jack Weingart, chief financial officer, during TPG’s first-quarter earnings call May 15.

Funds are taking longer to close, and “we believe near-term fundraising will remain difficult for the industry,” CEO Jon Winkelried said on the same call.

TPG reported $137.1 billion in assets under management as of March 31, up 1.6% from three months earlier and an 13.9% increase from a year earlier. TPG executives said the increase was primarily due to fundraising of $2 billion in the first quarter and $26.6 billion in the year ended March 31. Capital raised during the year included $9.3 billion for TPG Partners IX, $3.4 billion for TPG Asia VIII and $2.5 billion for TPG Real Estate Partners IV, which closed at its $6.8 billion hard cap in October.

“We set our original flagship fundraising targets under different market conditions,” Mr. Weingart said. “We still expect each fund to grow compared to its predecessor.”

TPG funds currently in the market include TPG Healthcare Partners II and TPG Rise Fund III, in addition to TPG Partners IX and TPG Asia VIII.

TPG’s investment activity was also slow, deploying $2 billion in the first quarter and $14 billion in the 12-month period ended March 31. TPG had $42.7 billion in dry powder at the end of the first quarter.

TPG reported $2.3 billion in exits in the first quarter, down from $4.8 billion in the year-earlier quarter.

“Given the long-dated nature of our capital, we will be very targeted and deliberate around monetizing investments during this part of the cycle,” Mr. Winkelried said.

During the call, TPG also announced its pending acquisition of credit and real estate manager Angelo Gordon, an equity and cash transaction valued at about $2.7 billion that is expected to close in the fourth quarter.

Angelo Gordon is early in the process of creating structures to allow it to be constantly fundraising, Mr. Weingart said during the call in response to an analyst’s question. But, he added, “that’s one of the real growth opportunities for us together.”

Apollo Global Management said it cut the target for its 10th flagship buyout fund, Apollo Investment Fund X, to “the low $20 billion range” from the $25 billion fundraising target mentioned during their second-quarter 2022 earnings call. At the time, Apollo had raised $13 billion.

“Fundraising trends in traditional private equity are still facing some headwinds, but with a total of approximately 30 commingled and perpetual capital vehicles to be in the market this year, we still feel confident in our ability to raise more capital than we did in 2022,” said Scott Kleinman, co-president, on the May 9 earnings call.

Apollo reported a 5.1% gross return for its flagship private equity fund in the quarter and 5% for the year ended March 31.

Apollo reported $598 billion in assets under management as of March 31, up 9% from three months earlier and up 17% from a year earlier.

Apollo reported inflows of $57 billion in the first quarter and $154 billion over the past 12 months for its asset management business. However, Apollo did not report inflows from institutional fundraising. Inflows included Apollo’s purchase of a significant portion of the securitized products group from Credit Suisse resulting in $20 billion in capital raised from institutional and retail investors.

Apollo’s credit business had $438 billion in AUM as of March 31, up 12% from Dec. 31 and up 17% from March 31, 2022. Private equity had $101 billion in assets under management, up 2% and up 17%, respectively.

Onex Corp., meanwhile, said in its first-quarter results on May 12 that it will stop raising its flagship private equity fund, Onex Partners VI, “until the fundraising environment improves.”

In November, the alternative investment firm held a first close of $2 billion for the fund, including its own commitment of $1.5 billion.

“Current market conditions are contributing to lengthy and time-consuming fundraising processes for many private equity funds,” Onex said.

Onex’s predecessor flagship fund, Onex Partners V, closed in 2017 with $7.15 billion, including a $2 billion commitment from the firm.

KKR & Co. raised $12 billion in the first quarter “which is a little bit on the lighter side for us,” said Robert Lewin, a partner and chief financial officer at KKR, during the May 8 earnings call. In the year ended March 31, KKR raised a total of $67 billion.

Fundraising is down from the prior quarter in which it added $16 billion in the quarter and $81 billion for the year in new capital. Fundraising is also off from the first quarter of 2022 when KKR raised $26 billion in the quarter and $132 billion in the 12-month period.

KKR executives also acknowledged that exits were down and do not expect to sell assets it owns until 2024 due to “a more challenging monetization environment” that will remain soft for much of 2023, Mr. Lewin said.

Scott C. Nuttall, KKR’s co-CEO, also said regarding exits that KKR is likely to sell less assets “in an environment like this.”

But, Mr. Nuttall added, “We are seeing the value of the portfolio continue to grow.”

Despite slower fundraising and few exits, KKR & Co. executives were optimistic May 8 about the firm’s ability to deploy its $106 billion in dry powder in a dislocated market and further expand its insurance companies and wealthy individual limited partnership base.

KKR’s uncalled capital commitments, or dry powder, are down slightly from $108 billion at the end of the fourth quarter and $115 billion at the end of the year-earlier quarter.

KKR reported $510 billion in assets under management as of March 31, up 1.2% from three months earlier and up 6% from a year earlier.

KKR reported gross returns for private equity of 2% in the first quarter and -9% in the year ended March 31. Opportunistic real estate was -3% in the first quarter and -9% in the year. Its leveraged credit composite was 4% in the quarter and 2% in the year, while its alternative credit composite earned 2% in the quarter and 2% in the year ended March 31.

This showed some wide swings from what KKR reported for the year-earlier quarter. KKR had reported private equity gross returns of -5% in the first quarter of 2022 and 19% in the year ended March 31, 2022. Opportunistic real estate had returned 11% and 30%, respectively; leveraged credit composite, -2% and 3% ; and alternative credit composite, -1% and 9%.