Listed GP results show strong returns from private debt

February 16, 2024 (Preqin News) – Private credit was in the spotlight as the world’s largest alternative asset managers revealed their fourth-quarter 2023 results, with all delivering double-digit investment returns from the asset class.

Blackstone kicked off the reporting season at the end of January with a 16.4% gross return from private credit, with TPG Angelo Gordon, a new player in private debt, bringing the season to a close this week.

Capturing the general enthusiasm and opportunity for private debt, Apollo Global Management said it wants to increase annual private credit origination from the $97bn achieved in 2023 to $200–250bn over the next five years, to position itself to capitalize on growing demand from institutional and, increasingly, individual investors.

‘In a higher interest rate backdrop and with lingering impacts of the denominator effect on traditional private equity allocations, institutional investor focus has pivoted to asset classes that offer current income, inflation protection, and access to areas of secular growth, namely credit, infrastructure, and sustainability,’ Scott Kleinman, Co-President and Director of Apollo Asset Management, said on the firm’s earnings call.

Investors will have no shortage of opportunities to deploy capital to private debt. Preqin is tracking 1,062 private debt funds in the market with a total target of $459.7bn. Last year, a total of 214 fund closes were recorded, with the $198.3bn raised down on 2022 ($220.6bn), but still the second-highest year ever.

Listed funds’ earnings releases provide the first glimpse of market conditions and performance across alternative asset classes. Here are the private credit highlights:

Apollo Global Management

• Apollo generated double-digit gross returns from its yielding strategies, with direct origination appreciating 19.8%, structured credit 14.3%, and corporate credit 12.3%.

• AUM rollforward increased from $392.5bn to $480.5bn in 2023, driven by net inflows of $86.4bn.

• The firm had $16bn of dry powder in yielding strategies at the end of 2023.

• Apollo currently has nine private credit funds open for investment, across direct lending, special situations, and real estate debt, according to Preqin data.

CEO Marc Rowan said that ‘by far the most important thing’ the firm needed to do was scale origination. ‘We need to rapidly move that up with a goal of somewhere between $200bn and $250bn of origination five years from now. As an alternative firm, that provides excess return per unit of risk,’ he said on the earnings call.

Ares Management

• Ares broke private debt returns down by strategy, but all were in double figures

• Gross returns from Asia Credit were 29.3%, ahead of US Senior Direct Lending (18.6%), US Junior Direct Lending (17.7%), Alternative Credit (14.8%), and European Direct Lending (11.0%).

• Ares’ Credit Group secured $55.4bn of new commitments, with AUM increasing from $225.6bn to $284.8bn.

• The firm has 12 funds open to investment, according to Preqin data, including direct lending funds for Europe (target €15bn) and North America ($10bn).

‘In 2023, we generated significant year-over-year growth in many of our key financial metrics, continued our fundraising momentum, and accelerated our investment activity, resulting in a strong quarter to end the year,’ Michael Arougheti, CEO and President of Ares said in a statement on the results.

Blackstone

• Blackstone reported a 16.4% gross return in Private Credit and 13.0% from Liquid Credit. Net returns were 12.1% from Private Credit and 12.4% from Liquid Credit.

• Credit & Insurance inflows for the year were $62.5bn. Total AUM for the segment rose 14% to $318.9bn.

• Blackstone has $45bn of dry powder in Credit & Insurance.

• The firm has 10 private credit vehicles open for investment, including four that are either evergreen, listed, or semi-open-ended. In November, it hit $8bn at a first close of Blackstone Senior Direct Lending Fund, a US-focused fund with a $10bn target, and will soon launch a $10bn mezzanine fund, Blackstone Capital Opportunities Fund V.

‘Our credit and insurance teams had a remarkable year in 2023, with gross returns of 16.4% in the private credit strategies and 13% in liquid credit. These are extraordinary results for a performing credit business. The default rate across our nearly 2,000 non-investment grade credits is only 30 basis points over the last 12 months,’ Jon Gray, President and COO, said on the firm’s investor call.

Brookfield Asset Management

• The 2019 acquisition of a majority stake in Oaktree Capital Management brought $120bn of private credit AUM under the Brookfield umbrella.

• Brookfield generated a 22% gross IRR and a 16% net IRR from its credit funds in 2023.

• Brookfield’s private credit AUM stood at $217bn at the end of 2023, and the firm has $23bn of uncalled commitments to deploy.

• Brookfield has partnered with Societe Generale to launch two Europe-focused private credit vehicles, a direct lending fund, and a fund-of-funds, both with targets of €10bn.

• Oaktree has 12 open investment vehicles at present, according to Preqin data. It is targeting $18bn for Oaktree Opportunities Fund XII and $10bn for Oaktree Lending Partners.

‘The most striking thing on the opportunistic credit side is the sheer enormity of the market right now. We think about the addressable market in four buckets: high-yield bonds, BBB-rated bonds, leveraged loans, and private credit. The size of those four categories just before the financial crisis was about $3tn. Today, it stands at roughly $13tn, so that’s a 4x increase – staggering growth in those categories,’ Bob O’Leary, Portfolio Manager, Global Opportunities at Oaktree, said in a January market commentary.

Carlyle Group

• Carlyle’s Global Credit funds appreciated 12% in 2023.

• Returns from liquid credit and other vehicles were also strong, with US CLOs returning 14% in 2023, European CLOs 13%, and 10% dividend yields on both BDCs and Carlyle Tactical Private Credit.

• AUM in Global Credit increased 28%, from $146bn to $188bn, boosted by $15.7bn of fundraising in the year and the acquisition of $24bn of assets related to Fortitude’s transaction with Lincoln Financial.

• Carlyle currently has seven closed-end private credit funds in market, according to Preqin data. The largest is Carlyle Credit Opportunities Fund III, which launched last year and has a $6.5bn target.

‘We had a great fundraising fourth quarter. We had a great year for fundraising in credit as well. And I expect, importantly, that that momentum in credit fundraising will continue well into 2024,’ John C. Redett, Chief Financial Officer and Head of Corporate Strategy, said on the results call.

KKR

• KKR also hit double digits in gross return from private credit, with Leveraged Credit Composite up 14% and Alternative Credit Composite up 10%.

• AUM in Credit and Liquid Strategies was up 12% year-over-year at $245bn, comprised of $123bn of leveraged credit, $48bn of asset-based finance, $38bn of direct lending, $10bn of strategic investments, and $27bn in hedge funds.

• The firm raised a total of $47bn of organic new capital for credit strategies.

• KKR has 11 funds, including sub-funds, currently out fundraising, according to Preqin data. These include direct lending funds in Europe and the US and an Asia-focused mezzanine fund. It also manages a North America-focused evergreen fund and two listed vehicles.

‘M&A volumes have been down. Private credit has had a larger share of a smaller amount of volume. And so, as the banks come back, our expectation is you'll see M&A volume pick up, and there'll still be plenty for the private credit market to participate in,’ Co-Chief Executive Officer (CEO) Scott Nuttall said on the earnings call.

TPG

• TPG completed the $2.7bn acquisition of Angelo Gordon in November last year, adding $57.4bn of AUM and marking its establishment as a substantial player in the private credit space.

• TPG AG Credit appreciated 14.1% in 2023, while the firm’s US CLOs generated loan-level returns of 15.2% and its European CLOs were up 13.0%.

• TPG Angelo Gordon raised $694mn last year.

• The firm currently has 11 private debt funds open to investment, mainly focused on direct lending and distressed debt in North America.

‘This strategic transaction meaningfully expands our investing capabilities and broadens our product offering. The addition of Angelo Gordon also underscores our continued focus on growing and scaling through diversification, while driving long-term value for our shareholders,’ Jon Winkelried, CEO of TPG, said of the Angelo Gordon acquisition.

_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.}