At this point, the Blue Owl situation is well-documented, but as a quick, admittedly overly simplified refresher, Blue Owl Capital recently halted redemptions at some of private funds following bad investments in software companies.
That practice, otherwise known as gating, can create crimped liquidity and when redemption requests surged to $265 billion (by some estimates) some big-name private credit and equity outfits were limiting redemptions to 5% of assets under management, or outright barring redemptions.
Still, advisors and clients are interested in private credit and private equity, indicating they’re not daunted by the Blue Owl scenario. That’s not to say they’re ignoring it, but they may be getting more selective about how they access private markets and that’s a good thing.
Advisors Have Use for Private Markets
Perhaps it’s an example of knowing your customer, but advisors use private market access as a tool to potentially convert prospects to clients. The spring edition of Blackstone’s Advisor Pulse indicates 77% of advisors frequently use private market investments as part of their value proposition when interacting with prospects with 18% occasionally doing so.
“Private markets can help advisors highlight how their practice stands out and adds value, which is why the majority of surveyed advisors said they include these investments when delivering their value proposition to prospective clients,” notes Blackstone. “With private markets becoming a core component of modern portfolios, providing access is increasingly key for advisors looking to stay ahead.”
That’s about much more than flashy shiny “objects” in front of prospects in an effort to compel them to sign on the dotted line. Again, it’s about knowing your customers and something to know is that many clients aren’t abandoning private markets because of Blue Owl. In fact, plenty – 90% to be precise -- are adding to their related allocations.
“Despite an evolving macro environment, nearly all surveyed advisors indicate they are increasing or maintaining private equity allocations,” adds Blackstone. “This resilience suggests continued interest in diversifying portfolios with private assets that can offer differentiated return potential and long-term growth that may be less tied to short-term public market volatility.”
Selectivity Matters
Undoubtedly, these are tenuous times in private markets. Blue Owl and related scenarios are unsettling clients and prospects and those investors want to know that when push comes to shove, they can get their capital back. At the moment, advisors can’t make such promises.
On the other hand, advisors are constructive on private markets, viewing the asset class as a diversifier in equity-heavy portfolios, one that offers potentially higher income than bonds and one that, in some circumstances, offers tax efficiencies. Those are among the reasons why advisors are increasingly focusing on issues such as private credit managers’ track records and underwriting expertise before making decisions with client capital. Expect those to remain points of emphasis, particularly in the post-Blue Owl era.
“A strong track record stands out as a differentiator when advisors select a private credit manager, signaling they place a premium on experience and proven performance across market cycles. Credit underwriting expertise follows closely, reinforcing the value placed on disciplined deal selection and risk management,” concludes Blackstone.
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