Inside Q2 2025: What the Biggest Alternative Managers Are Talking About
Key Takeaways from 400 Pages of Transcripts
👋 Hey, Nick here. This is the 127th edition of my weekly newsletter. You can read my previous articles here and subscribe here
Every quarter, I summarise the 400+ pages of earnings transcripts from the largest managers. I do this for two main reasons:
It helps me understand the consensus views.
It brings to light unfiltered and occasionally provocative opinions.
I know only 1% of you will read the whole thing, but if you want to feel insufferably smug, I’d recommend printing this out, blocking 15 minutes in your diary, and giving it a proper read.
For the rest of you attention-deficit debt enthusiasts, I’ve included a breakdown of key topics with links. Skim, skip, or dive in. Your capital, your choice.
📚 Quotes of the Quarter
What’s Apollo’s North Star?
Why Blue Owl thinks its portfolio offers the most Attractive Risk-Adjusted Returns in the market?
Why Apollo want More Transparency in private credit?
What makes KKR confident that private credit can Scale Through the Noise?
Digitalization, Decarbonization, and Deglobalization: Three themes driving growth.
Why Traditional Asset Managers are Focused on Private Markets
How’s Fundraising going?
Why Everyone is Excited about the 401(k) Executive Order?
What managers think about ABF?
Why Harley-Davidson shareholders like KKR’s ABF?
Why is Apollo growing in Europe?
Who’s still talking about Data Centers?
Should we all believe in the Rising Tide?
Who’s announcing new Partnerships?
What’s going on with M&A?
Why is no one talking about Absolute Returns anymore?
What’s keeping Defaults in check?
All the links to the transcripts can be found here
Provocative Opinions
Apollo’s North Star
Apollo: “We are watching emergent sources of demand come together, which far exceed the capacity of our industry as it exists today to produce excess return per unit of risk private assets.
I think the thing that has value in a more transparent world with lots of demand is origination. You find a good asset that offers excess return per unit of risk, you will get paid for it. You will get paid for it in fee, you will get paid for it by owning a piece of it. You will sell it to a fund, to an investor, to a co-invest, to a managed account or to a 401(k).
And so, the North Star for us is we need to serve all these markets.
We need to have structures that adapt to the unique requirements of each market.
We need to have more transparency.
We need to have daily pricing. We need to have more liquid, which does not mean fully liquid because that's not what is going to happen.
But at the end of the day, we have to originate. I'm excited about what we're doing and the journey, as Jim said, is just starting. It's not like we're at the end of a mature cycle. It's all in front of us.”
Blue Owl’s Reminder to Investors
Blue Owl: “I just always remind investors, we're earning 10% on new investments, on primarily first lien, 40-plus percent [LTVs], $200-plus million EBITDA recession-resistant businesses. I continue to think that's one of the most attractive risk-adjusted returns in the market, especially if you think there's going to be a recession.
Transparency
Apollo: “In every industry where transparency of pricing and daily price availability has taken place, the industry has grown massively.
For those who resist this, it generally means that your fee is above where it's supposed to be and you don't want to shine a light on it.
We believe that the growth of this market will benefit those who are in a strong position from origination. We see this as a positive and a potential game-changer. Innovation is the name of the game here.
Private Credit’s Noise
KKR: “Private credit as a space is getting some of the same kind of noise that private equity got 20-plus years ago; number of new entrants, can it scale?
What does this mean?
What we and others have found, if you go up in size, you build different capabilities, you look at adjacencies, there's lots of different ways to continue to grow.
Digitalization, Decarbonization, and Deglobalization
Brookfield: “These three Ds are more relevant today than ever before.
First, deglobalization has evolved from a discussion around supply chain resiliency into a broader reordering of global trade. We are seeing increased re-shoring and near-shoring across manufacturing and significant investment in alternative and duplicate supply chains. That is driving a surge in demand for logistics subs, advanced manufacturing facilities and modern industrial infrastructure.
Decarbonization originally centered on Net Zero commitments now also reflects growing concern around energy security and increasingly grid stability. The focus on new energy sources is no longer a long-term policy goal. It is a near-term economic imperative. The lowest cost, fastest-to-market, scalable solution remains renewable power. Most importantly, increased solar penetration is driving soaring demand for the grid-stabilizing benefits of hydro, nuclear, and storage.
Lastly, digitalization which initially focused on cloud infrastructure, telecom towers and fiber has entered a new phase. Artificial intelligence is transforming how data is created, processed and consumed. That transformation is driving exponential demand for computing power, data center capacity and sovereign scale AI campuses. In fact, we believe the infrastructure build-out for AI will be one of the largest capital formation cycles of this generation. We are developing next-generation AI infrastructure around the world with having already built 2,000 megawatts of data center capacity and being one of the largest renewable providers in the world, we can deliver on large complex transactions integrated with energy, land entitlement and development under one roof, and that is exactly what the largest hyperscalers and governments are looking for in a partner.
The convergence of these megatrends has created a powerful investment landscape. We are uniquely positioned to lead. We’re investing at scale in these high-growth sectors supported by multi-decade structural tailwinds.
Consensus Views
Why Traditional Asset Managers are Focused on Private Markets
Apollo: “Traditional asset managers have struggled with the rise of passive and the decline of active; active being the higher fee, more value-added business. I believe we are watching traditional managers begin to redefine what active management is, rather than the buying and selling of stocks, the addition of private assets to complement public portfolios. There are lots of examples out there of collaborations, and we are in the beginning stages of this. But this has the potential to be a very, very large market, and most importantly, to serve a clientele that we historically as an industry have not had access to.”
Blackrock: “If you believe over a 30-year horizon, you could add 50 basis points, which is not an unrealistic target. It adds 18% to the corpus 30 years later.
Fundraising
Brookfield: “To put it simply, we’re raising more money in more places across more products than at any point in our history. And that’s both by geography and by asset class and product. As an example, year-to-date, we’ve raised twice as much capital in Europe as we did last year.
KKR: “Last April, we shared a target for fundraising for 2024 through 2026 at over $300 billion. We're halfway through those 36 months, and we're ahead of pace and feel really good about the target we shared with you.”
401k(s)
Apollo: “Part of the vision that we have for the world going forward is a return to defined benefit in the form of guaranteed income.. I think it's the big opportunity ahead for our industry, which is not simply to think about our business of retirement in the context of the products that exist, but to think about it in the terms of simple guaranteed lifetime income. That is the Holy Grail for us.”
KKR: “If you're a teacher, probably 30% or so of your retirement is provided through alternative investments. For a dentist, that percentage] is going to be closer to zero.
And so, in many ways, this is about giving people an option to allocate a portion of their savings to higher-performing asset classes, no different than what we've seen from institutions over the last many number of decades.
In the U.S., retirement is a $40 trillion market with defined contribution being $12 billion, if not even north of that.
It does make a lot of sense to us that target date funds, which have been taking 60% plus of share of 401(k) flows is where you'll probably see alternatives first.
So again, if you think of someone who's early in their retirement planning, it just makes sense to us that someone who's early in that glide path with that really long-term vision is where alts can be most relevant.
We don't think you should expect this to be like flipping a switch, but it is incremental to everything that you see across the firm currently and we think we're really well positioned.
We do think brand will matter. We think track records, investment expertise will matter, and we think depth and breadth of origination will matter. And these are all things that we think are truly differentiated aspects of KKR. And given all of that, again, just to be clear, we are dedicating the resources against this that you'd expect
The target date market is very concentrated. The top five players have over 80% market share. Our partners at Capital Group are one of those five players. So, you can imagine we're having discussions as to what the future might look like together.”
Blackstone: “The fact that we have created scale perpetual products that have track records that can absorb large amounts of capital, that is a real competitive advantage… It's going to be about firms with brand names, the right legal approaches, and track record that capital can get allocated to… Our positioning in this space will be fairly unique, and the range of offerings we have across asset classes, again, pretty unique to be a partner with distributors in this space.”
Brookfield: “We feel that this is going to be an opportunity that is created over an extended period of time several years and decades. And none of those partnerships to the best of our knowledge, are exclusive. And we feel that we have the best products, and the right leadership vision, we’ll be well positioned to capture this opportunity in the years to come.”
Apollo: “We used to think of people investing in public markets and buying stocks and bonds. People don't really buy stocks and bonds. They buy indices, they buy solutions, they buy outcomes.
Right now, the private market is in the stock and bond purchasing. People pick this fund or that fund. As opposed to I want a 60/40 portfolio, and in my 60% portfolio, I want to have access to both public and private markets. In my 40% portfolio, I want access to public and private markets.
Some people will want more alpha, subordination. Some people will want less alpha they're getting closer to retirement, more certainty, investment-grade.
So, I think the primary access point for us will be indirect, either through participation in target date funds or traditional asset managers who dominate this market already, recognizing that retiree portfolios that are really long-dated, that are not supposed to be traded, are the perfect place for high quality private.”
ABF
KKR: “We see ABF as a $6 trillion addressable market today, increasing to over $9 trillion over the next four years. The alternative credit ecosystem overall, including not only ABF, but also direct lending and capital solutions, is now larger than the traditional high-yield and leveraged loan markets combined. So, ABF is a growing market with secular tailwinds for our industry, and we believe that we are already a leader in the space today.”
Carlyle: “Asset-based finance AUM is up 40% year-over-year and continues to scale rapidly.”
Blue Owl: “In the next couple of years, you could see 10% to 15% of the portfolio in some of these new strategies, and don't hold me to that. But I want folks to know it can be meaningful, but I also want them to know it's not going to dominate our investing.”
Why Harley-Davidson shareholders like KKR’s ABF
“Companies are electing to grow in a more capital-light fashion and free up capital to use for other strategic initiatives.
That's what you saw in the Harley-Davidson deal.
They sold the majority of their motorcycle loan portfolio, and then there's also a long term flow partnership to sell new motorcycle loan originations.
Harley-Davidson is a company with a truly iconic brand, a really passionate, loyal customer base, but it is another example of this broader trend.
And you've seen this in a number of instances for us, whether this is Discover, PayPal, BMO Financial Group..
Companies electing to go capital-light to free up capital to pursue other strategic objectives.
And it was great from our standpoint to see the reaction in their stock. I think it was up 12% or 13%. So, it certainly seemed to be very well received by Harley-Davidson shareholders.”
Europe
Apollo: “The UK has many of the same demographic, corporate, and pension trends and needs that the US does. It does not have the same amount of capital. And the UK regulatory regime and the UK regulatory mood is one of encouraging private capital into its marketplace, particularly investment-grade private capital that supports the long-term projects that the UK and other, quite frankly, European governments want to do.. We are very excited of what that could lead to and excited to enter the UK market in real size and scale.
Data Centers
KKR: “The opportunity is broader than just data centers. There's going to be a need for data centers, but at the same time, you need massive investment in fiber, massive investment in mobile infrastructure at the same time to support the growth in data creation and consumption.”
Brookfield": “The first is a $10 billion public-private investment program to support the Swedish Government in building out a next-generation digital infrastructure to power the growth of AI and cloud computing within the country. This framework allows us to integrate our Renewable, Infrastructure, and Real Estate capabilities to deliver a full suite solution at scale.
The second is a renewable energy Framework Agreement with Google. Under this agreement, we will deliver up to 3,000 megawatts of hydroelectric capacity across the United States, starting with initial contracts valued at more than $3 billion. These facilities provide stable, clean baseload power, a critical input for AI and data operations. These transactions build on other strategic partnerships we’ve already formed with Microsoft, Barclays, and the French Government to deliver high-value infrastructure.”
Rising Tide
Apollo: “In terms of the industry, most of our peer set has now announced, and I think what you're seeing across the industry, to varying degrees, is a rising tide lifting all boats. Recall that our industry is some 40 years old, and we started a business that served the smallest bucket of our institutional clients called alternatives. We now have a significant number of other sources of demand.”
Bank, Pension, and Insurance Partnerships
Blackstone: “With L&G, it's a partnership focused around credit and insurance.. $20 billion is ultimately our aspiration with them… The main element of it will be managing investment-grade private credit for their pension risk transfer and annuities business, something we obviously do for large clients here and SMA clients. So that's a relationship to make them even more competitive in that marketplace in the UK. And then we also said we're going to try to do some things together in wealth, creating some products together for the UK market, and then potentially in retirement and defined contributions again with our credit products.”
Brookfield: “This quarter, we announced the first-of-its-kind collaboration with Citigroup in the fintech specialty lending space. We also entered into a new strategic origination partnership, bringing us to six platform partnerships that collectively enhance our differentiated origination capabilities.
Apollo: “Currently, our global network of 12 bank partnerships spans to both US and international… we anticipate adding a handful of new partnerships by year-end 2025.”
M&A
Blackstone: “You can feel the tumblers falling into place. It's the combination of equity markets recovering to record levels. It’s debt spreads now back to the pre-liberation day tights. It's general business confidence, particularly for businesses away from manufacturing and retailing..
There's also a more favorable regulatory environment than there's been in a few years..
And when you just look at the levels of M&A and IPO volume over the last three plus years, it's running about two-thirds below historic levels as a percentage of market cap of the stock market.
So, there's just a lot of pent-up demand in the system. And then when we look at our proprietary data, we've got the busiest pipeline we've had since 2021 of potential IPOs.”
Blue Owl: “There's been a noticeable pickup in engagement with sponsors in the last 60 days or so that feels a little bit different… We've seen inbounds on potential public to private activity… Those are really exciting.
There is still activity where we're refinancing loans in the public market into the private markets.
And then there's just good old-fashioned sponsors looking to potentially sell companies to other sponsors. We continue to see a steady drumbeat of add-on acquisition financing for our portfolio that's been carrying us throughout.
But I would say those first three buckets or so, there's been enough in each area that gives us some hope that this will translate into increased deal activity in the second half of the year.”
Absolute Returns
Blackstone: “Absolute returns may come down a bit, but the relative premium for private credit and what private credit can do and how it can solve solutions for borrowers, that continues.”
Blackstone: “[Our clients] are enthused about the enduring premium between the liquid markets and private credit. And so long as that continues to exist, I think this makes this a very attractive space. In the second quarter for our insurance clients, we delivered that A-rated premium of 185 basis points, 190 over the last 18 months. “
Blue Owl: “Direct lending still commands a healthy premium to the broadly syndicated loan market, yielding a 150 to 200 basis point premium.”
Defaults
Blue Owl: “The modest write-downs in Q2 occurred on a few companies that have been on our watch list for several quarters, including some that have been impacted by tariffs. None of these are new underperforming names.”
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