Apollo Founder Harris Says Big PE Firms Have Left Alpha Behind

(Bloomberg) -- 26North Partners founder Josh Harris said he started his firm to bring big, market-beating returns back to alternative asset management.

The largest managers, including Carlyle Group Inc., Apollo Global Management Inc., Blackstone Inc., KKR & Co. and TPG Inc., have built “incredible investing ecosystems, but many of them had gotten so big and become public companies,” he said in an interview for an upcoming episode of The David Rubenstein Show: Peer to Peer Conversations.

“They were sort of the beta of alts,” Harris added, using the term for investments that produce returns in line with the broader market, as opposed to market-beating “alpha” investments. “What had been left a little bit behind was alpha.”

Private equity has come under pressure in recent years as higher interest rates have weighed on dealmaking, leading firms to return less capital to investors as they struggle to sell assets. For the biggest managers, diversifying into businesses such as credit and insurance has been essential to amassing assets and fees to weather the buyout slump.

Harris, 59, co-founded Apollo with Leon Black and Marc Rowan almost 35 years ago before announcing in 2021 that he was stepping down. He debuted 26North Partners the next year with $5 billion, touting it as a “next-generation” alternative asset management firm.

With Blackstone executive David Blitzer, he’s co-founder of Harris Blitzer Sports & Entertainment and an owner of the National Basketball Association’s Philadelphia 76ers, the National Hockey League’s New Jersey Devils and the National Football League’s Washington Commanders.

Poor private equity returns have benefited 26North, which also invests in debt and insurance strategies, by allowing it to back good companies at better prices, he said. 26North has raised $23 billion in 24 months, according to Harris.

“Private equity is going through a bit of a transition where multiple values have peaked and they’re on their way down,” he said. “Some of the returns haven’t been as good.”

Carlyle, Apollo, Blackstone, KKR and TPG either declined to comment or didn’t return requests for comment.

For the full interview, watch The David Rubenstein Show: Peer to Peer Conversations on Wednesday night at 9:00 p.m. New York time on Bloomberg Television.