The biggest publicly traded alternative asset managers have more than a half-trillion dollars to put to work — and they’re gearing up for a deals comeback.
Seven of the firms reported a collective $722 billion in dry powder as of June 30 — a 9% increase from a year earlier, according to earnings data compiled by Bloomberg. Now that the Federal Reserve is expected to cut interest rates, money managers have extra firepower to make deals again.
“The macro, inflation and rates backdrop has improved, markets are open — and the deal market is back,” KKR & Co. Co-Chief Executive Officer Scott Nuttall said on the firm’s second-quarter earnings call.
Dealmaking dried up in the past couple of years as the high cost of debt spurred would-be buyers to retreat. That also limited new opportunities to finance acquisitions, a key area of business for big diversified asset managers such as Ares Management.
Distributions to paid-in capital — a measure of capital returned to investors — remain low amid a lack of exits, and firms face growing pressure from investors in older funds who want their cash back. Some dealmakers took the opportunity to tout this week’s market rout as ripe moment to swoop in.
“Although the markets have clearly become far more volatile since late last week, it’s not yet clear how this may impact the underlying economy,” TPG Chief Executive Officer Jon Winkelried said on the firm’s earnings call Tuesday. “We know periods of market dislocation create compelling investment opportunities.”
Private equity dealmaking has picked up in recent months as more firms get comfortable deploying capital, with KKR announcing a deal for education technology company Instructure Holdings; Apollo Global Management Inc. planning to acquire Travel Corp.; Blackstone striking a deal with Goldman Sachs Alternatives to take L’Occitane International private; and Carlyle Group buying the operator of KFC fried chicken restaurants in Japan.
KKR executives touted the prospect for more dealmaking in the second half of the year, expecting at least $500 million of exits in the current quarter.
Apollo invested a record $70 billion during the second quarter, more than double a year earlier.
“Buyer and seller confidence has improved, despite recent volatility,” Carlyle Chief Financial Officer John Redett told analysts this week. Meanwhile, Carlyle Chief Executive Officer Harvey Schwartz said a dynamic market environment could spur the Fed to take action.
Brookfield Asset Management President Connor Teskey told analysts Aug. 7 that liquidity for high-quality assets in its private equity unit “has come back quite dramatically,” driven by lending and tightening of spreads.
Teskey and Brookfield Chief Executive Officer Bruce Flatt said in a letter to shareholders that same day that they expect deal activity to pick up now that central banks have begun cutting interest rates. The firm agreed to a slew of deals in the second quarter, including acquiring a majority stake in French renewable developer Neoen; investing in Dubai-based GEMS Education, one of the world’s largest private-school operators; and buying a stake in Gulf Islamic Investments’ logistics unit.
All of the big, publicly traded private equity firms reported an increase in dry powder — except for Blackstone, whose available capital declined as it put more money to work.
In March, Blackstone President Jon Gray told Bloomberg that real estate prices were bottoming. The firm deployed almost $15 billion in the first six months of the year in real estate — about two-and-a-half times that of the same stretch last year.
