Tailoring private equity to private wealth

The rich are hot property in today’s private equity industry.

GPs are becoming aware that only a fraction of the trillions held by wealthy individuals is being tapped by the asset class. Managers, especially the biggest, are looking to change this by pouring substantial resources into private wealth channels.

The topic was front and center at PEI Group’s NEXUS 2024 summit this week, with Blackstone president and COO Jonathan Gray calling retail investors an $80 trillion opportunity.

One reason why we are hearing so much about this now is slow fundraising caused by weak supply. Sponsors with offerings in the market are motivated to draw on alternative capital sources to supplement the limited supply available from traditional institutional LPs.

With greater GP interest in high-net-worth investors, a noteworthy trend is the formation of private equity-specific products tailored to the liquidity requirements of this source.

Such vehicles, though not entirely novel, seem to be proliferating of late. Blackstone in January said it raised an initial $1.3 billion for a fund covering a wide scope of private equity strategies. And Carlyle last month said it would soon roll out a fund of the same ilk.

Ares Management also has an entry, which is interesting in part due to its focus. The firm in 2022 unveiled Ares Private Markets Fund to give wealthy individuals exposure to private equity investing – principally on a secondary basis. The offering was anchored with an initial $250 million, including $75 million from Ares.

Managed by the secondaries group, APMF has since been distributed to registered investment advisers and financial advisers through Ares Wealth Management Solutions. Last September, it was launched on its first wire house.

The fund has been gaining traction with high-net-worth investors, CEO Michael Arougheti said in February. It raised about $240 million in last year’s fourth quarter, he said, increasing the pool’s assets to more than $800 million.

The fundraising marks “a significant ramp” in APMF, Arougheti said, allowing it to continue gaining “scale and momentum.”

The vehicle invests in LP-led and GP-led secondaries deals, including single-asset processes, and preferred equity transactions across a range of strategies. As of January, it had 143 portfolio investments, 95 percent of them secondary in nature, according to Ares WMS.

Spanning 11 sectors and more than 2,500 underlying companies, APMF investments are concentrated in buyout and growth equity strategies in North America and Europe, Ares WMS said. More than 70 percent of investments are LP-led deals.

This is reflected in the fund’s top 10 holdings. Most are stakes in flagships acquired from LPs, such as Warburg Pincus Private Equity XII, Blackstone Capital Partners VI, Alpine Investors VI, Vista Equity Partners V, Sycamore Partners III and Platinum Equity Capital Partners IV.

APMF is one piece of Ares’ overall private wealth effort, which last year brought in nearly $5 billion of equity and debt commitments.

“We’re starting to see an acceleration within the wealth management channel,” Arougheti said, “as our broadening set of products is attracting a growing number of distribution partners.”