(Bloomberg) -- Investors are favoring private equity over private credit for the first time this year, according to Lawrence Calcano, the chief executive officer of iCapital.
About 45% of assets were allocated to private equity strategies in the third quarter, according to Calcano, while 34% was dedicated to private credit during the same period, said Calcano at iCapital, which has more than $200 billion in alternative assets on its marketplace for money managers. That’s a switch from the first half of this year, when roughly 44% of iCapital’s subscription flows went to private credit strategies and 33% went to private equity.
Private equity dealmaking has suffered in recent years as economic uncertainty disrupted the pace of asset sales and the cost of financing these assets has soared. But an improved market for initial public offerings and a lower rates trajectory is expected to lift the industry next year.
“The pendulum has swung back in favor of private equity,” Calcano said in an interview. “While private credit had a good run, we see appetite for private equity continuing to grow, and we’ll see even more of a tailwind for PE when some of the top managers come back to the market with their flagship funds in 2025.”
Firms are setting ambitious targets for their latest flagship funds, with KKR & Co. for example, aiming to raise $20 billion for its most recent North America buyout fund.
iCapital, which helps firms such as KKR and Blackstone Inc. connect to affluent investors, has also seen a significant increase in funds with interval structures as managers expand their reach to these wealth channels. Interval funds target individuals with lower investment minimums than typical private funds and offers them a chance to cash out — with limits — every quarter. Around 60% of iCapital’s volume this year in alternatives is in these so-called evergreen strategies, Calcano said.
“There are a lot of people in the lab right now trying to figure out how best to deliver these products to the retail channel broadly,” he said.
However, while these types of funds offer some liquidity, Calcano cautioned any perception that it’s easy to withdraw capital from these vehicles.
“The idea of anything being marketed as semi-liquid never sits right with me,” he said. “Human nature is what it is; when people hear semi-liquid, we run the risk of people just hearing the word ‘liquid,’ and really, these types of assets and products comparatively speaking, are not liquid. Advisers and investors need to be attuned to that.”
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