Pensions & Investments: PGIM Private Alternatives CEO sets course for growing AUM to $500 billion
Feb 27, 2024
PGIM's move to launch its private alternatives unit — bringing together $310.9 billion in assets under management across four asset classes — was primarily driven by what clients want, said Eric Adler, president and CEO of PGIM Private Alternatives.
Adler was appointed in September to run the new unit, which pulls together PGIM's real estate, agriculture, private credit and private equity capabilities. He was previously president and CEO of PGIM Real Estate and chair of private equity.
"If I had to pick a main catalyst, it (was) really investor led," he said in an exclusive interview at the firm's London office. "The biggest institutional investors are wanting to work with less managers — they want to feel like they're working with the same firm" across these types of asset classes.
Familiarity with a manager and its reporting, for example, may be a deciding factor in deepening a relationship for a client, Adler said. Pulling alternatives under one bigger unit "gives us more of an edge with clients that don't want to work with multiple managers."
Increasing interest from a retail standpoint also contributed to the decision, due to the amount of work it takes to get onto retail distribution platforms.
An offshoot of institutions' desire to work with fewer managers is that they are also looking for more multiasset solutions. Having capabilities under one unit helps with that, he added.
And once the unit has further developed and added a few capabilities — Adler has identified types of asset-backed finance firms as potential acquisition targets, and would also like to add on the equity infrastructure side — it's "then a growth story."
Although he doesn't like to use assets under management as a target, he wants the unit to hit $500 billion in the next four or five years. If the real estate market picks up, the firm can realize its private credit ambition and can also gain the infrastructure capability, "it doesn't take a lot to grow the business significantly," he added.
His growth ambitions for the alternatives unit fit with parent company PGIM's own plans for expansion — Adler indicated that the wider firm is looking at the Middle East for future growth.
Mixed performance
Individual asset classes within private markets have been something of a mixed bag in terms of performance of late. Real estate is down, private equity is in "a bit of a lull," and infrastructure has continued to do well, Adler said.
And then there's private credit — arguably the most talked about and sought-after capability among money managers right now.
PGIM Private Alternatives has about $100 billion in private credit assets under management, and the business was bolstered by a deal to acquire a majority stake in U.S. private credit and direct lending manager Deerpath Capital Management in May, and the 2021 acquisition of Switzerland-based Montana Capital Partners.
"We had growth last year, and we have a lot of ambition" in private credit, Adler said.
Prior to the Deerpath acquisition, PGIM "lived the midsize segment" of direct lending, working with companies with EBITDAs of between $15 million and $75 million or so. Deerpath brought "money we don't historically go after" in the smaller part of the market at between $5 million and $25 million, he said.
But he wants to push private credit further. While PGIM Private Alternatives is "wedded" to midmarket lending, he wants to be more in the business of lending to larger companies: Deerpath helped PGIM Private Alternatives to "move downstream — I think organically we should be able to move upstream," he said.
He's also looking at the asset-backed finance market.
"We have capability, but (it's a) space we want to grow into. One way is to lend to companies that are specialized," such as a firm that focuses on music royalties, for example.
But "there is a thought of do we go the route of buying some of those specialists?" Adler said. "We're exploring (whether) there are some ABF areas...that we like enough to own one of the companies...We do some ABF deals, but it's still anecdotal," he said.
Of various concerns that private credit may be in something of a bubble, Adler said he wouldn't give the asset class that label yet.
However, he acknowledged that there are more aggressive, covenant-light terms in the market due to increased competition. "There's a good amount of demand, but a lot of supply. That can lead to terms that are dicey," although PGIM has "been able to hold the line in midmarket," he added.
His hope is to scale private credit in an intelligent way. "Deerpath was a great transaction. It may not be the last in private credit," Adler said.
He also wants to grow the equity infrastructure side of the business more quickly. The firm is historically an infrastructure lender, with $30 billion in infrastructure debt falling under its private credit business. "That's a place we are very open to looking for another acquisition," he said.
Real estate's challenges
While real estate has faced challenges over recent years, PGIM has "been fairly risk-off on real estate since January 2017" for various reasons, and has been able to weather the office sector being hit "pretty well," having been weighted toward residential and industrial assets. In terms of geography, "we think the price adjustment makes for interesting opportunities now in Asia."
When considering China, geopolitics has to come into play. "It's not an easy time to be increasing investment … until (you) understand the competitive dynamic between China and the U.S. We want to see where it shakes out." With a challenged Chinese economy, the need for authorities to get internal consumption up and a handle on debt, "right now, it is an easy sit on the sidelines for us," Adler said.
And the other part of the alternatives business, private equity, "looks like it should be back in '24," he said.
The firm operates private equity secondaries strategies, and saw big opportunities as nerves set in among limited partners against the backdrop of the Ukraine war. "Until that point, really, to buy into LP structures, you needed to pay a premium (as there was) so much competition. They went to discounts pretty quickly, based on fear of being stuck in an illiquid asset class if things went bad quickly with the war in Ukraine," he said.
That settled down in 2022 and volumes fell. That environment has continued. "New money wants to see a correction — and some expectation that the economy should come off the boil a little bit...The private equity machine is a transaction machine," Adler said. "And we are excited about it...We just need somebody to take the plunge" and restart the market, he added.
Learn more
Press Release
PGIM bolsters alternatives franchise with the appointment of Eric Adler to lead newly formed PGIM Private Alternatives Oct 12, 2023 – 3 minutes
Eric Adler
President and Chief Executive Officer of PGIM Private Alternatives
Read bio