The supposedly superior performance of private capital assets is a double-edged sword. The S&P 500 is down a fifth this year. US alternatives managers have, at least on current valuations, avoided such devastation. But that bounty is a complication for their limited partners like pension funds and endowments.
Those backers have limits on how much they can allocate to private assets, say 20 to 30 per cent of portfolios. The drop in public market values has arithmetically put the real ratios out of kilter. The phenomenon is known as the “denominator effect”.
The beleaguered Carlyle Group has only raised $6bn in fresh capital in the quarter. It is without a permanent chief executive after the departure of Kewsong Lee in the summer. Analysts asked the company whether leadership turmoil had depressed fundraising. The company pointed instead to upheaval among pools of capital that it described as “congestion in the market” and the “denominator effect”.