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Source: IPEM<\/p>\n
(Bloomberg) — The salespeople on the front line of a private-markets push to win over the world\u2019s wealthy are quite adept at fielding questions on opacity, liquidity and valuation. Their list of tricky talking points just got a new addition \u2014 the so-called SaaSpocalypse.<\/p>\n
Most Read from Bloomberg<\/p>\n
At the IPEM Wealth conference that kicked off in Cannes this week, a market meltdown linked to fears over artificial intelligence\u2019s impact was an uncomfortable backdrop as a selloff ripped through a raft of software stocks. It also spilled over to private-credit and alternative asset managers, many of whom were out in force at the event. However, evangelists of private markets pitching their products to Europe\u2019s affluent had a different message: Nothing to see here.<\/p>\n
Meanwhile, investors fretted about the money managers\u2019 exposure to those software companies. KKR & Co. ended the week almost 10% lower, while Ares Management Corp. dropped 12.8% even after the firms reported solid results. Both companies, together with peers Blackstone Inc., and EQT AB, are sitting on double-digit declines since the start of January.<\/p>\n
The jitters back home in London and New York pose a new challenge for private-market players who are already under scrutiny from regulators around the world. Policymakers in the US, European Union and Australia have been pushing for more transparency in private markets as they assess financial stability and contagion risks.<\/p>\n
While the stock plunge tests the ability of private-market advocates to pitch their funds to wealth clients and exposes their need to sharpen their marketing scripts, the tone at the IPEM conference \u2014 and outside \u2014 was broadly optimistic.<\/p>\n
Panelists including Ares\u2019 head of investment strategy, Brendan McCurdy, discussed how to make alternatives a more central part of portfolios at the IPEM event on Feb. 5. At the same time, McCurdy\u2019s boss and Ares Chief Executive Officer Michael Arougheti faced the task of addressing the company\u2019s plunging share price as he unveiled results in New York.<\/p>\n
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Markets are \u201cmissing the point\u201d that loans are safe, Arougheti said in a Bloomberg Television interview Thursday. \u201cThat\u2019s why I work in private markets, the markets trade on momentum, there\u2019s a lot of forces in the public markets that are not tethered to fundamentals.\u201d<\/p>\n
The AI turbulence was front and center for KKR too, with the first analyst question on the company\u2019s earnings call on Feb. 5 immediately addressing the \u201celephant in the room.\u201d<\/p>\n
Co-Chief Executive Officer Scott Nuttall sought to assuage concerns, noting that only about 7% of its $744 billion of assets under management is exposed to software, a concentration well below industry levels.<\/p>\n
\u201cWe tell people here that they\u2019ve got to focus on things they can control, short-term trading of our stock is not one of them,\u201d KKR Chief Financial Officer Robert Lewin said in a Bloomberg Television interview. \u201cWe feel really good about our exposure. This isn\u2019t something that has become front of mind in the past couple of days, this is something we have been thinking about for a number of years.\u201d<\/p>\n
Won\u2019t End Well<\/p>\n
Those reassurances aren\u2019t likely to silence long-time critics who have been flagging the risks of opening private-market products to a broader and less sophisticated audience.<\/p>\n
The rush of money from everyday investors is \u201cnot going to end well,\u201d 26north Partners founder and former Apollo co-founder Josh Harris said at a separate event this week.<\/p>\n
\u201cPeople don\u2019t understand the duration,\u201d Harris said Tuesday at a Wall Street Journal conference. \u201cThey don\u2019t understand that some of these structures may not be liquid when things go wrong \u2014 and that\u2019s exactly when they need the money.\u201d<\/p>\n
Such warnings and the latest market gyrations threaten to compound the pressure that\u2019s gradually been building on the amped-up scores of private fund sales teams sipping champagne in the hotel bars along Cannes\u2019 boulevard de la Croissette.<\/p>\n
More than 130 private market funds were launched over the past two years, after the European Commission overhauled rules for so-called Eltifs, short for European Long-Term Investment Fund. But asset managers have so far largely refrained from disclosing how much the vehicles have raised while they continue to work on building out their distribution channels.<\/p>\n
Growing pains are also being felt at relatively new private-markets players such as BlackRock Inc., which last year halted a plan to launch an infrastructure Eltif.<\/p>\n
Assets in open-ended vehicles, which offer investors the chance to withdraw some of their money \u2014 unless there\u2019s a stampede for the exit \u2014 nearly quadrupled to \u20ac9 billion ($10.6 billion) in Europe from the beginning of 2024 through the end of September last year, according to Novantigo. The research and consulting firm estimates that Eltifs\u2019 overall assets could reach more than \u20ac180 billion by the end of the decade, up from \u20ac29 billion currently.<\/p>\n
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Europe\u2019s fragmented regulatory landscape is a factor and has forced private fund giants including Blackstone, Apollo and KKR to go on a drive to educate intermediaries as they seek partners that can help sell their products to wealthy investors in countries across the continent.<\/p>\n
\u201cEducation is crucial to what we do,\u201d said Farhad Karim, chief operating officer of Blackstone Private Wealth, speaking broadly of private markets. \u201cWhen headlines move faster than fundamentals, the most important thing we can offer is transparency. When you do that, the picture often looks quite different from the narrative. Facts matter.\u201d<\/p>\n
Private-market products haven\u2019t yet taken off in Europe in marked contrast to the US, where adoption has been more widespread.<\/p>\n
For example, an Eltif doesn\u2019t require a minimum investment, making it more accessible to retail investors. But many managers typically still ask fund buyers to stump up at least \u20ac10,000. Fees also tend to be far higher than what publicly traded funds charge, given the work involved in sourcing and executing deals.<\/p>\n
\u201cThis is a bit of a chicken and egg situation,\u201d said Mara Dobrescu, a senior principal at research firm Morningstar Inc.<\/p>\n
Investment platforms have been slow in onboarding retail-oriented evergreen funds in Europe, citing operational complexity because these vehicles involve different notice periods, fee structures, redemption terms, and gating mechanisms, she said. At the same time, retail investors \u201chaven\u2019t exactly been clamoring\u201d for these products either, she added.<\/p>\n
Structures like Eltifs are \u201cfairly new and unfamiliar, and the lack of a track-record makes it difficult to know what to expect,\u201d Dobrescu said.<\/p>\n
Race for Exit<\/p>\n
Market observers regularly warn that evergreen funds will have to restrict withdrawals when markets get choppy. That\u2019s in part because individual investors can be more prone to a race for the exit at times of turbulence.<\/p>\n
The Blackstone Real Estate Income Trust is among the industry\u2019s most recent and prominent examples. After a rapid rise in interest rates three years ago spooked investors who feared property values would fall, Blackstone was forced to limit withdrawals.<\/p>\n
Analysts and traders, meanwhile, are assessing the durability of private credit, a cornerstone of the products that private markets firms are racing to sell to wealth clients.<\/p>\n
A BlackRock private debt fund said last month that it expects to mark down the net value of its assets in part because of its exposure to e-commerce aggregators. Investors from one of Blue Owl Capital Inc.\u2019s tech-focused funds pulled about 15.4% of net assets.<\/p>\n
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IPEM\u2019s organizers, for what it\u2019s worth, seem to be acutely aware of the risks their industry is facing.<\/p>\n
In the event\u2019s main brochure, the hosts liken private capital managers\u2019 push into retail to a \u201cgold rush\u201d where \u201cexcitement is high\u201d and competition fierce. \u201cAs the tide rises, we have a collective responsibility to remain disciplined and aligned to determine whether the industry stays on top \u2014 or is pulled under.\u201d<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
\u00a92026 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"Source: IPEM (Bloomberg) — The salespeople on the front line of a private-markets push to win over the…\n","protected":false},"author":2,"featured_media":286219,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[220,218,219,137506,56543,15704,5148,61,137505,60,137509,137507,137508,88936,137510,80],"class_list":{"0":"post-286218","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-artificial-intelligence","10":"tag-artificialintelligence","11":"tag-asset-managers","12":"tag-blackstone","13":"tag-chief-executive-officer","14":"tag-european-union","15":"tag-ie","16":"tag-ipem","17":"tag-ireland","18":"tag-josh-harris","19":"tag-kkr","20":"tag-michael-arougheti","21":"tag-private-markets","22":"tag-software-companies","23":"tag-technology"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/286218","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=286218"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/286218\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/286219"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=286218"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=286218"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=286218"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}