By Telis Demos

With the stroke of President Trump's pen, private-equity and private-credit fund managers moved a step closer to expanding into the $12 trillion-plus market for 401(k) assets.

So why are shares of those firms trailing the market so badly this year?

Alternative-asset managers Apollo Global Management, Ares Management, Blackstone, Blue Owl Capital, KKR and TPG are all either down or significantly trailing the S&P 500 this year. Carlyle Group is a standout, outpacing the index.

Some of these moves may reflect an overhang from a long period of surging share prices -- especially for Apollo, Blackstone and KKR, which rallied ahead of their inclusions in the S&P 500 over the past couple of years.

But there are also some concerns hanging over the industry, clouding the outlook for what has up until now been one of the biggest growth stories on Wall Street.

On the private-equity side, there is a worry that firms will have a tough time selling down prior investments at good prices to realize their gains.

Following a binge of acquiring companies during the post-Covid deal frenzy, it is generally proving harder to now sell those companies on. There have been some notable initial public offerings this year of private-equity-backed companies, such as the roughly $1.4 billion IPO for cybersecurity company SailPoint. But the overall number of exits in the second quarter -- which also includes sales to other financial sponsors or to corporations -- slowed to about 10% below the typical prepandemic quarterly average, according to PitchBook.

The private-equity industry globally had an "inventory" of over 30,000 companies through the first quarter of this year, according to PitchBook. At last year's pace of exits, it would take about eight years to clear that inventory, PitchBook estimates.

Dragging out the period from investment to payback reduces investment returns by some measures. It also could extend a recent industrywide slowdown of new fundraising and fee growth. Investors who don't get their money back from an old fund can be less inclined to sign up for new ones.

Meanwhile on the lending side, the paucity of new fundraising and new deals means private equity isn't looking for as much new borrowing from the private credit market. The result is tighter pricing in the so-called direct lending market when deals do come to market.

This matters to lenders as they seek to attract investors, and those that are also directly earning investment income via insurance units, such as Apollo and KKR. Firms earn spread income from raising funds through retirement products such as annuities, then putting that money to work in credit.

For now, however, both management fees on funds and insurance investment income are still growing across the sector at a good pace. Across the large, listed alternative-asset managers tracked by analysts at Wolfe Research, fee-related earnings grew 21% year-over-year in the second quarter.

So there is still time for a pickup in activity to change the narrative. Already, some corners of the market have started to buy into a rebound in boardroom sentiment via shares of deal-focused investment banks. M&A advisers Evercore and PJT Partners are so far beating the S&P 500 this year, as are most of the largest Wall Street megabanks.

Shares of Carlyle Group have also surged ahead of the broader "alts" group. Executives said during its second-quarter conference call that realizations across the global firm over the past 12 months were "approaching levels not seen since 2022."

"You're starting to see things thaw a bit," says Wolfe Research analyst Steven Chubak. He added that based on patterns from prior dealmaking freezes-and-thaws, "the IPO market is an important leading indicator." And the IPO market has recently started to sizzle.

There may also be a "winners-take-more" scenario emerging across private managers. PitchBook in a recent report said it expects that the top 10 managers this year will have raised a third of all private-debt capital raised from 2014 through 2025 -- the highest share in a decade.

And, if the 401(k) opportunity does emerge as anticipated, the largest managers with the most marketing resources and biggest brands might be able to scoop up a disproportionate share.

Still, markets have learned that conditions can change rapidly these days. And the enduring lesson for investors is that a lot of what goes into a private manager must eventually come out, too.

Write to Telis Demos at Telis.Demos@wsj.com

(END) Dow Jones Newswires

August 19, 2025 05:30 ET (09:30 GMT)

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