Carlyle Group is a global investment firm that focuses on alternative investments such as private equity, real estate, credit, and infrastructure. The firm’s alternative investments strategy involves identifying high-potential assets and adding value through operational improvements, with the aim of selling those assets for a profit. Carlyle Group has a total of $376 billion in AUM as of 3/1/2023.
Recently, Carlyle has been expanding its focus to include retail investors, with the launch of a retail platform called “Carlyle Access.” This platform enables individual investors to invest in private equity funds with lower minimum investment amounts. It also provides access to a range of alternative investment strategies, including real estate, credit, and infrastructure.
Carlyle’s alternative investments strategy aims to provide investors with access to high-quality assets that aren’t available through traditional public markets. By targeting assets with potential for operational improvement, Carlyle seeks to generate attractive returns for investors over the long term. Retail investors have become increasingly interested in alternative investments. As we’ve noted before, Private Markets are Going Mainstream.
The recent move towards retail investors through Carlyle Access is an important strategic shift for the firm.
Carlyle Group Alternative Investment Funds
Carlyle Group has several publicly filing alternative investment products available for high net worth retail investors. Here are a few examples:
Net Assets (12/31/2022)
Carlyle Tactical Private Credit Fund
Liquid credit (10%-20%), direct lending (25%-35%), opportunistic credit(35%-45%), loans and structured credit (10%-15%), distressed credit (0%-10%)
Carlyle AlpInvest Private Markets Fund
Tender Offer Fund
Private equity investments, including direct investments in private companies, private and secondary purchases of PE funds
Recently Launched, no assets reported yet
CPG Carlyle Commitments Master Fund*
Tender Offer Fund
Invest in private equity funds sponsored by or associated with Carlyle Group
Carlyle Credit Solutions, Inc.
Private NT BDC
Senior secured credit investments in stable companies with positive cash flow
Carlyle Secured Lending III
Private NT BDC
Middle market debt, below investment grade and unrated
For more detailed info on non-traded BDCS, Interval Funds, and Tender Offer funds check out the Tools and Data Page.
Franklin Templeton has long been a mutual fund powerhouse. However, they have also quietly become one of the biggest players in the alternative investments industry. Strategic M&A and educational initiatives helped Franklin Templeton alternative investment products gain traction in the RIA channel. Franklin Templeton’s strategic focus on alternative investments is just beginning to have an industry impact.
Franklin Tempelton has a history of maintaining a conservative balance sheet and a large cash reserve. Under the leadership of Jenny Johnson, they have used this cash reserve to make large strategic acquisitions. Franklin Temleton’s AUM has grown from ~$700 billion in 2018 to almost $1.4 trillion by the end of 2022. Several of the largest acquisitions were in the alternative investments sector, especially private credit.
Franklin Templeton bought Legg Mason for $6.5 billion in 2020, just as Covid was breaking out, wreaking havoc on global supply chains and financial markets. Critics accused them of paying too much. Its too early to determine if this will be a successful acquisition, but it clearly unlocked expanded their alternatives capabilities, and opened a lot of growth opportunities for their firm. The Legg Mason platform includes several different affiliates with different processes areas of expertise. Franklin Tempelton is allowing them to operate autonomously. One of Legg Mason’s subsidiaries is Clarion, which manages the Clarion Partners Real Estate Fund, a tender offer fund.
In November 2021 they acquired Lexington Partners, one of the private equity firms with a focus on secondary PE investments. They currently have a $14 billion flagship global secondary fund, a $2.7 billion middle market secondary fund, ad $3.2 billion co-investment vehicle.
In November 2022, Franklin Templeton completed its acquisition of BNY Alcentra. This acquisition expanded their private credit capabilities. Alcentra has unique expertise in European private credit. This will give Franklin Templeton management of several retail credit vehicles, including BNY Mellon Alcentra Global Credit Fund a tender offer fund.
Franklin Alternative Investments Education
Surveys frequently reveal that a lack of education is a major barrier to advisers that are looking to offer more alternative investment products. Fund managers that fill this educational gap will have a major strategic advantage. For example, Blackstone offers an “Intro To Alternatives” online video series. Several other products sponsors will offer educational products.
Franklin Templeton has recently increased its efforts focused on alternative investments. For example, in November 2022, In November, the Franklin Templeton Academy announced the launch of its alternative education program as part of our ongoing effort to build knowledge and proficiency around the alternative investment landscape.
According to a recent earnings call:
The program offers a comprehensive curriculum on various types of alternatives, including courses on private equity, real estate, private credit, infrastructure and hedge strategies.
Coursework on alternative investments that the FT Academy offers is eligible for credit toward Certified Financial Planner® (CFP®), Chartered Institute of Management Accountants® (CIMA®), Retirement Management Advisor® (RMA®) and Certified Private Wealth Advisor® (CPWA®) certifications and offered at no cost to the learner.
Franklin Templeton has a strong distribution network for traditional mutual funds that it built out over over half a century. However, they only recently started to ramp up their distribution team for alternative investment products. On the 2022Q4 earnings call, Franklin Templeton management mentioned that they created a dedicated distribution team to cover alternative investment products in the wealth management channel.
This table shows some of the most notable retail alternative products that Franklin Templeton is currently offering .
Franklin BSP Capital Corp
First and second lien senior secured loans of private middle market companies
Franklin BSP Lending Corp(f/k/a Business Development Corp of America)
Public NT BDC
Senior secured loans of private middle market US companies.
Franklin BSP Private Credit Fund
Private credit investments in middle market companies
Launched 2022Q4, no assets reported yet
Clarion Partners Real Estate Income Fund
Tender Offer Fund
Private commercial real estate and publicly traded real estate securities
BNY Alcentra Global Multi-Strategy Credit Fund, Inc.
Tender Offer Fund
Credit instruments including senior secured loans, CLOs, structured products, etc.
Several of these products are starting to gain major traction in the RIA channel.
Free tools and data for the alternative investments industry:
Fidelity’s registration of a non-traded BDC and an interval fund represents a watershed moment for the alternative investments sector. In a prior article we examined the structural and strategic differences between these two funds. In this article we will discuss the broader meaning for the investment management industry.
First of all, Fidelity is gigantic compared to NT BDC and Interval Fund sector. In order to move the needle at all, Fidelity will need to raise one of the largest BDCs and Interval Funds. According to its website, Fidelity has a total of $3.7 trillion in discretionary assets under management, mostly in mutual funds and ETFs. Compared to these traditional markets, the NT BDC and interval fund sectors are almost comically small.
Total assets in the NT BDC market are ~$124 billion, and the total assets in the interval fund market are $60 billion. If Fidelity were to raise enough capital to double the size of the BDC and interval fund markets, their new funds would still account for less than 5% of their AUM.
Of course BlackRock, which has over $9 trillion in AUM is also active in the retail alts space, with three non-traded BDCs and two interval funds. Yet there is another unique angle to the Fidelity story.
Fidelity is more well known for its equity mutual funds, but its entrance into this niche indicates that they recognize that alternative investment strategies are essential components of a diversified portfolio. Fidelity will be expanding the alternative investments market, rather than just competing with other asset managers.
The core thesis behind the creation of this site is that alternative investments are no longer alternative- they are an essential part of any portfolio. The Financial Times recently published an article highlighting a key trend that supports this thesis:
According to the FT, more than a dozen fund groups known for mutual funds and ETFs reported at least a $100billion in alternative assets at the end of 2021. These include firms such as BlackRock, Franklin Templeton Pimco, and Invesco.
This chart shows the amount of alt assets at a few major firms.
There are basically two ways mutual fund and ETF focused asset managers can expand into alternatives- build it or buy it. However, the latter method- asset manager M&A, is what seems to be making the biggest splash in the industry. For example, AllianceBernstein announced plans to purchase CarVal Investors, building its alternatives business to nearly $50 billion. Franklin Templeton is buying Lexington Partners, increasing its alternative asset AUM to $200 billion.
Why traditional asset managers need alternative investments
Why are traditional asset managers so keen to buy alternative asset managers? The key reason is investor demand. Institutional investors have all been increasing their allocation to private lending, private equity real estate, infrastructure, and private equity in recent years. A recent survey found that 86% of institutional limited partners intended to invest the same or more money in private capital in coming years.
So the institutional channel is big and growing. But the real story is the “mass affluent” retail investor demand for alternative funds:
The fund mangers also hope to capitalise on an expected wave of interest from wealthy retail clients looking for stable long-term returns at a time when bonds and equities have been volatile. Some envy the success of alternative managers in introducing products for the very rich, such as real estate and credit funds launched by BlackStone, the worlds largest private equity group.
Most people don’t think of firms like BlackRock, Franklin Templeton, Pimco, or Invesco as alternative asset managers, yet they are starting to shift their focus. BlackRock CEO Larry Fink ‘s annual letter to shareholders mentioned that plans to accelerate growth in private markets were central to the group’s strategy. The entrance of large traditional fund managers into the retail alternative channel is going to dramatically alter the shape of the industry. They will open up new sales channels for alternative products, while also raising the bar in terms of quality and transparency.
In fact, traditional asset managers have already started to make a major impact on key niches of the alternative fund management industry, such as non-traded REITs and interval funds. The Blackrock Credit Strategies Fund is a closed end interval fund that launched in 2018. It now has $428.2 million in assets. When Franklin Templeton bought out Benefit Street Partners, they took over management of a non-traded REIT, now known as the Franklin BSP Real Estate Trust . The Invesco Senior Loan Fund is one of the longest running interval funds. Research at Interval Fund Tracker highlighted how well it weathered the global financial crisis of 2008-2009. The Invesco Dynamic Opportunities fund was previously a traditional exchange traded closed end fund, but it converted to an interval fund while staying on the exchange.
The latest issue The Economist features a special report on Private Markets. This report provides broad historical context to the current boom in private equity, real estate, and other alternative assets. It analyzes the tailwinds that have driven record amounts of capital into private markets, and the risks and opportunities the industry is facing in the near future. Its a must read for anyone interested in alternative investments. As we’ve noted several times before- alternative investments have gone mainstream.
The article discusses how the pioneers of leveraged buyouts transformed and reinvented themselves into diversified alternative investment platforms with exposure to a wide range of assets. One section in particular focuses on how asset managers that traditionally focused on high end institutional clients are now focusing on marketing to mom and pop investors.
Quoting from the article:
The PE giants are hustling for high-end retail business from clients who count as “accredited” investors whom regulators deem sophisticated enough to buy private assets. The big firms are also strengthening private-wealth teams, in some cases poaching from banks. Alisa Wood of KKR says the firm is looking to raise a third or more of its capital from retail investors. Apollo expects individuals and advisers to invest $50bn over the next five years. To that end, in December Apollo acquired part of Griffin Capital, a Los Angeles -based fund manger. The next target is the “mas affluent”, or merely quite well off, who have little invested in private markets and want more. Several firms, including Blackstone and Brookfield, have launched or are working on PE, credit, property or infrastructure funds tailored to smaller investors.
Product Innovation to Meet Retail Needs
These new investment products cover a wide range of asset classes, and can come in a wide range of product wrappers. Interval Funds and Tender Offer Funds have become more common in recent years. Non-traded REITs and Non-traded BDCs are also important structures, especially for real estate and credit exposure. Regardless of the wrapper, asset managers need to innovate to create solutions that meet retail investor needs. Two important challenges are the need for liquidity, and the need for transparency.
One difficulty over turning this retail trickle into a flood is illiquidity. REtail investors want to trade in and out of investments at a reliable net asset value, if not daily then weekly or monthly. That is not easy to engineer with private assets. Some a the cutting edge are making headway. Swiss-headquartered PArtners Group manages over $36bn in open-ended PE funds for investors including wealthy retail clients. Investors receive monthly net asset values and can redeem ata 30-90 day notices(although funds can halt redemptions during market turmoil).
For more information about Partners Group and their massively successful closed end fund products, check out this article on TenderOfferFunds.com
Meeting retail investor needs is an essential part of the long run business strategy for all major alternative asset management firms. As the article notes:
The retail pus aims both to increase clients and to grow fee based revenues. This goes hand in hand with the objective of raising more “perpetual” capital. Not only are profits from traditional PE funds erratic, but also the funds have to be wound up, typically after ten years. Big firms want to move away from this here-today-sold tomorrow model. They like vehicles that can invest for longer, or are open-ended. , avoiding the need to go cap in hand to investors every few years.
A lot of alternative asset managers are publicly traded, and also need to consider how the public markets view fee streams. In general, asset managers with a higher percentage of base management fees from permanent capital vehicles will command a higher valuation.