Alternative Asset Managers

# Executive Summary The alternative asset management industry is undergoing a profound transformation, driven by technological innovation and shifting capital market dynamics. Artificial Intelligence (AI) is creating a massive new investment cycle in digital infrastructure while simultaneously enhancing operational efficiencies across firms. This is complemented by a structural shift in capital markets, fueling the rapid expansion of private credit as managers fill a void left by traditional banks. Firms are aggressively expanding into the private wealth channel, developing new products to unlock a vast, sticky source of assets under management (AUM) growth. Competition is intensifying, driving a wave of mergers and acquisitions (M&A) as firms consolidate to gain scale, acquire new capabilities, and enhance distribution. Financial performance is diverging, with leaders capitalizing on these secular trends to post strong revenue growth, while a strategic focus on fee-related earnings (FRE) is separating winners on profitability and valuation. Macroeconomic headwinds, particularly the potential for a "high-for-longer" interest rate environment, remain a key risk to valuations and portfolio company performance. ## Key Trends & Outlook The alternative asset management industry is at the epicenter of a transformative investment cycle driven by Artificial Intelligence. This trend is creating unprecedented demand for digital infrastructure, with forecasts suggesting over $1 trillion in capital expenditures in the U.S. alone over the next five years. This creates a massive capital deployment opportunity for managers with expertise in data centers and, critically, the power required to run them. Firms like DigitalBridge Group, Inc. (DBRG), with its 20-gigawatt "power bank" of secured power across its data center portfolio, and Brookfield Corporation (BN), with its development of large-scale "AI factories," are positioning themselves as essential infrastructure providers for the AI revolution. Beyond being an investment theme, AI is also being integrated into operations to enhance efficiency and investment decision-making, directly impacting margins. The expansion of private credit continues unabated, representing a fundamental shift as companies seek flexible capital outside of regulated banking channels. The market, which surpassed $1.5 trillion at the start of 2024, is expected to grow to $2.6 trillion by 2029. Managers are aggressively scaling their platforms through M&A, like TPG Inc.'s (TPG) successful integration of Angelo Gordon, to capture this demand from both borrowers and investors seeking yield. The largest near-term opportunity lies in tapping the private wealth market, which requires significant product innovation and new distribution strategies but unlocks a massive new source of capital. The primary risk remains macroeconomic uncertainty, as a "high-for-longer" interest rate environment could continue to pressure portfolio company performance, delay realization activity, and negatively impact asset valuations. ## Competitive Landscape The alternative asset management industry is projected to grow from US$16.8 trillion in 2023 to over US$30 trillion by 2030, but it is not monolithic. While dominated by a few "hyperscalers," the landscape is defined by several distinct competitive strategies. Some firms, like Blackstone Inc. (BX), compete on sheer scale and diversification. As the industry's largest alternative asset manager, Blackstone leverages its immense scale, globally recognized brand, and diversified platform across private equity, credit, real estate, and multi-asset strategies to raise enormous, long-duration pools of capital. This allows for unmatched fundraising ability, the capacity to execute the largest and most complex deals, and the ability to invest heavily in multiple secular trends simultaneously. In contrast, others like DigitalBridge Group, Inc. (DBRG) focus on dominating a specific high-growth niche. DBRG's singular focus on the digital infrastructure ecosystem, from data centers to fiber, allows it to offer unparalleled operational expertise and a unique "power bank" of over 20 gigawatts of secured power, making it a key partner for capitalizing on AI-driven demand. This specialized approach enables firms to command premium fees and generate superior returns through deep, focused knowledge. Furthermore, firms like WisdomTree, Inc. (WT) are pioneering new models based on technological innovation. WisdomTree has built a vertically integrated blockchain platform, including its own transfer agent, stablecoin (USDW), and a '40 Act tokenized money market fund (WTGXX), creating a new, more efficient way for investors to access private markets. Mergers and acquisitions (M&A) are the key dynamic shaping this landscape, with firms like Rithm Capital Corp. (RITM) using acquisitions to rapidly transform their business models and compete across these different strategic approaches. Rithm's recent acquisitions of Sculptor Capital Management, Crestline Management, and Paramount Group, Inc. demonstrate its aggressive use of M&A to pivot from a mortgage REIT into a diversified global asset manager. ## Financial Performance Revenue growth is sharply bifurcating across the industry, ranging from over +90% year-over-year (YoY) for specialists in high-growth niches to negative growth for firms facing headwinds from slower realization activity or asset class repositioning. This divergence is driven by exposure to the most material secular trends. Firms deeply embedded in AI infrastructure, specialized private markets, or benefiting from recent transformative acquisitions are seeing explosive growth. DigitalBridge Group, Inc.'s (DBRG) +22% YoY fee revenue growth in Q3 2025 exemplifies the tailwind from the AI infrastructure boom. In contrast, managers more exposed to volatile public markets or slower M&A environments are lagging, with TPG Inc.'s (TPG) -2.9% YoY revenue decline in Q3 2025 reflecting the broader impact of market volatility on realization-dependent income streams. {{chart_0}} A clear divergence in margin stability and strength is emerging across the industry. Best-in-class fee-related earnings (FRE) margins are approaching 60%, while others are significantly lower and more volatile. The key driver of profitability is the strategic shift toward a higher mix of management fee-related earnings (FRE) derived from long-duration or permanent capital. This creates a predictable, high-margin revenue stream that is insulated from the timing of asset sales. Firms that have successfully built this model command premium margins and valuations. Blue Owl Capital Inc. (OWL) is a quintessential example, with a 57% FRE margin in Q2 2025, driven by approximately 87% of its FRE being derived from a substantial permanent capital base. This contrasts with firms more reliant on performance fees, whose profitability can fluctuate significantly with market cycles. {{chart_1}} Capital allocation is focused on two primary, often simultaneous, objectives: strategic M&A to accelerate growth into key themes and consistent capital returns to shareholders. Companies are using M&A as a tool to rapidly gain exposure to the most attractive growth areas like private credit and digital infrastructure. Rithm Capital Corp.'s (RITM) recent acquisitions of Sculptor Capital Management, Crestline Management, and Paramount Group, Inc. showcase the aggressive use of M&A to transform a business model. At the same time, strong FRE generation provides the confidence to maintain robust buyback and dividend programs, with Affiliated Managers Group, Inc. (AMG) planning to repurchase $400 million in stock in 2025, demonstrating a strong commitment to shareholder returns. The industry's balance sheets are generally strong, characterized by significant liquidity and "dry powder." Decades of successful fundraising and a focus on long-term committed capital have resulted in substantial undeployed capital. This liquidity is a key strategic advantage, allowing firms to weather market downturns and opportunistically deploy into dislocations. Blackstone Inc.'s (BX) $177 billion in dry powder is a clear indicator of the immense financial capacity held by industry leaders, positioning them to fund large-scale acquisitions and investments.