KBRA believes that alternative asset managers focused on private equity (PE) and private credit (PC) strategies are among fundamentally stronger asset classes, owing to their resilient business models that enable these financial institutions to better navigate more challenging conditions. We expect this to remain true in the current operating environment which includes high interest rates, persistent inflation, weaker economic performance, and regulatory changes. Although fundraising and investment exits can be pressured in a weakening economy, fee-paying assets under management (AUM) are not susceptible to redemption or net asset value risk given that funds are predominantly closed-end with long life spans. Management fees, which typically are based on committed capital or invested capital at cost, are quite resilient and predictable for well-established PE- and PC-focused managers. In addition, most firms benefit from dry powder that can be deployed during a downturn and which often translates to strong returns over the medium to longer term.

KBRA currently rates 47 asset managers that aggregate approximately $2.5 trillion in AUM as of end-2022, providing us with a unique view of this asset class. The bulk of these ratings are unpublished and related to privately placed debt totaling over $19 billion. Proceeds from debt issuances are primarily used to help fund co-investments and platform acquisitions. In a few cases, a portion of debt proceeds have been used to fund partners’ payouts.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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