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Private credit titans lean on public rivals in bid to enter retirement product race
by Lisa Fu
Private credit titans such as Apollo and Blackstone are teaming up with asset management giants, arguably their longtime rivals, in a race to package a mix of public and private credit assets into retirement products.
State Street Global Advisors and Apollo teamed up to launch the State Street Target Retirement IndexPlus Strategy, which gives retirement channel investors access to diversified public and private market investments. Earlier this year, the two launched an ETF giving investors exposure to public and private investment grade fixed income.
Blackstone, Wellington, and Vanguard quickly announced their own alliance in April, with plans to develop multi-asset investment products that include public and private market assets as well as active and index strategies.
More recently, KKR and Capital Group expanded their partnership with a goal to package private market assets into vehicles such as model portfolios and target date funds.
“Unlocking daily liquidity and daily price transparency in private markets requires a profound understanding of the entire financial and trading ecosystems,” said Anna Paglia, chief business officer for State Street Global Advisors. “It should not be surprising to see traditional asset managers work with private asset companies.”
Managers are betting that including private credit and other private assets in a successful product for retail investors, many of which invest using retirement accounts such as 401(k)s, could unlock trillions of dollars in fee-paying assets.
It should not be surprising to see asset managers work with private asset companies
Anna Paglia
Chief business officer
State Street Global Advisors
Retail investors’ allocation to private assets could grow exponentially to USD 2.4tn by 2030 from USD 80bn today, Deloitte predicted in an April report. Many hope combining the alternative investment capabilities of private credit managers with the indexing technology held by traditional managers will help these odd couples find success.
The future standard portfolio will move away from the 60% public equity/40% public bond split, predicted BlackRock CEO Larry Fink in his annual letter to shareholders. He believes portfolios will include private assets that can lift returns and protect investors in times of market downturns.
Though private credit managers and traditional managers offering public fixed income are competitors vying for cash from institutional investors, the two sides are cooperating rather than trying to build missing capabilities from scratch.
Accessing the retail channel is difficult due to regulatory hurdles and the cost of managing these small accounts, said David Fann, a former partner at consultant Aksia, who now serves as head of investor relations at VSS Capital Partners.
The largest traditional managers have the technology and capability to manage these accounts, but their public fixed income products have faced outflows and fee pressure. This has led them to partner with large private credit managers.
On the flip side, private credit firms continue to see inflows and high margins — but they do not have the technology or relationships to sell their products to the retail channel. They can gain more clients and broader investor reach if they can lean on the traditional asset manager for distribution, said Daniel Sotiroff, senior manager research analyst at Morningstar.
However, many of these partnerships are new and there is no guarantee that their products will be a hit among retail investors. These investors still require a lot of education, even for existing public market products. Any new public-private credit products may be too complicated for the retail channel to appreciate at this point, Sotiroff said.
Matt Douglass, CEO at PGIM Private Capital, said that bringing private assets to retail investors makes sense, but managers need to do so carefully.
“You have to make sure the investors understand liquidity... and make sure it’s regulated in a way that individual investors understand the risks,” he said.
