What's easier to raise AUM (PE/credit)?
Hi guys:
What do you think is easier to raise AUM in the next 10 years - traditional buyout PE, or high-yielding alternative credit products? For those who considered choosing between these 2 paths - would love to hear your thoughts!
Bump
Your asking the wrong question. Traditional PE is far more lucrative for the GP. Your fund would need to be 5x larger in private credit or 2-3x larger in special situation credit to have the same economics as high performing buyouts.
Interesting, can you elaborate please?
It's referencing the 2&20 payment model (more like 1.5 & 20 these days for large cap). Vs i'm not sure what it is in credit but there's no way to pay 1.5-2% every year when your return threshold is so much lower. I imagine the performance incentive isn't 20% either. I know in infra funds it's usually 1 & 10, which is why they pay less. Credit is probably lower than that.
Reflective of the lower inherent yield in those safer assets and the likely tighter distribution of returns diminishing the need to pay a larger performance incentive.
I summered at a PE FoF and noticed that most endowments and pension funds (consulting clients and investors in the FoF vehicle) had much larger allocations (% wise) to buyout funds as opposed to RE and Credit. To my understanding, this may make it relatively easier to raise money but there are certainly more buyout funds out there as compared to credit funds and that may offset the allocation advantage.
In general, PE. But in times like these, credit (just look at everyone raising dislocation / extension funds right now).
For a commingled fund, PE, however alot of the large credit managers have a significant chunk of their AuM in separate accounts. Less separate accounts in the PE space due to size of investments.
It's actually easier to raise/amass credit AuM but probably harder to raise a credit specific fund. LPs who would normally write 300-500m commitment checks tend to have credit separate accounts instead of investing in commingled funds.
Note this comment includes both CLO and high yield public debt as well as private loans.
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