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Seth Bernstein, the CEO of AB, wants to expand the $555 billion asset manager, but he isn’t looking at the same roadmap as everyone else.
AB currently has more than $20 billion in alternatives – private credit, hedge funds, real estate, and other strategies. Speaking at the Morgan Stanley Financials Conference on Tuesday, Bernstein said he’s not looking to expand into private equity and private equity real estate, though he’s keen to grow the credit business, including collateralized loan obligations.
The asset management industry has been struggling as investors flee actively-managed products in favor of passive and shareholders demand better margins. That’s led some managers to explore adding or expanding alternatives businesses. Unlike mutual funds and exchange-traded-funds, private equity and other higher-fee funds keep investors’ money locked up for years, including through economic downturns that often lead investors to pull their money from other strategies.
BlackRock CEO Larry Fink, for example, has been pointing to illiquid alternatives as a major growth area for the $6.5 trillion firm. In April, the firm collected $2.75 billion in the first round of capital raising for its debut long-term private equity fund.
AB’s Bernstein, however, said he is trying to “shy away from” private equity and private equity real estate “for the simple reason that to make those profitable for my unit holders, they have to be of such scale that it would take us I think 10 or 15 years to actually build it out.”
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He said he’s also concerned about alignment of interests between shareholders and investment teams, which can hurt marketing efforts.
“Finally, I’m not sure the world needs another private equity or real estate firm out there. I think there are a lot of competitors in that space today,” Bernstein said.
However, he is eyeing credit as an expansion area. Bernstein said the firm is looking for teams with strong backgrounds that AB can build on, rather than buying a full team outright.
“Whether it’s in CLOs or other areas where the firm has not historically been a major player, I think we can make real inroads, but I think we’ll take our time doing it as the credit cycle turns,” he said. “I think there are a lot of sub-scale players out there.”
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