Sentiment in the private equity industry appeared to warm as the four largest US-listed private equity firms by assets under management reported full-year 2023 results and shared an outlook of improving dealmaking and fundraising conditions.
The apparent optimism produced the highest average net positivity score in four quarters for Apollo Global Management Inc., Blackstone Inc., The Carlyle Group Inc. and KKR & Co. Inc., according to an analysis of the language used by executives and analysts on the group's fourth-quarter 2023 earnings calls in late January and early February.
The 1.14% average was a step up from the 0.86% average of the four in the previous quarter, but it still trailed the 1.24% average net positivity score for S&P 500 companies reporting earnings between Jan. 1 and Feb. 12.
Net positivity trended higher for all four firms on their most recent earnings calls compared with the previous quarter's report to investors. All but Apollo notched a score above their previous four-quarter average.
Predictions of busier M&A and IPO markets in 2024 promise a boost for the firm's private equity strategies. But executives at the alternative asset managers mostly credited their sunnier outlook to investments outside of private equity that have captured the attention of their limited partners.
“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,” said Apollo Director Scott Kleinman.
Fundraising outlook
All four managers grew their assets under management in 2023, but AUM expanded fastest at Apollo, increasing 18.8% year-over-year to $650.77 billion as of the end of Q4. Blackstone in Q2 became the first listed alternative asset manager to pass $1 trillion in assets under management, ending the year with $1.04 trillion in AUM, up 6.7% year-over-year from $974.67 billion at the end of 2022.
Global private equity fundraising slumped to a six-year low in 2023 and deal activity fell for the second consecutive year, but KKR is among the firms planning to go to market with a new vintage of a flagship private equity fund. An analyst on KKR's Q4 earnings call asked whether fundraising for new funds might be hampered by the slow deployment of capital already committed by investors to their existing private equity funds.
"[We] actually expect across the industry to see deployment increase in '24 as it relates to '23," responded Craig Larson, the firm's head of investor relations, adding that the firm's pipeline of potential deals was growing.
– Download a file of raw data used for this story.
– Read about the outlook for infrastructure fundraising.
– Catch up on PE-backed deal activity.
Carlyle also plans to launch flagship PE funds in 2024. The firm is targeting $40 billion in fundraising across strategies this year — which would be an improvement on its $37.1 billion fundraising performance in 2023 — but CEO Harvey Mitchell Schwartz acknowledged that straight-ahead corporate private equity is currently a tougher sell with limited partners.
“In terms of our Asia buyout and European buyout, I think they will continue to face, in 2024, industry headwinds that we're seeing and our peers are seeing, as well,” Schwartz said.
Total return performance
All four of the largest US-listed alternative asset managers outperformed the S&P 500 in 2023 on total return performance, a metric that combines stock price movements and dividends to approximate the actual returns of an investment.
The S&P 500 posted a total return performance of 26.3% between Jan. 1 and Dec. 31, 2023, compared with 42.6% for Carlyle, 49.4% for Apollo, 80.5% for KKR and 82.7% for Blackstone over the same period.
Dividend forecast
The 94-cent dividend distributed by Blackstone was the highest dividend announced by the Big 4 firms in Q4.
Eclipse, an S&P Global dividend forecasting service, projected the firm's dividend would grow 60% to $1.50 by Q1 2025, which is faster growth than the estimate for dividends of the other three peers.
