PGIM, the investment management arm of Prudential Financial, is making a big push to build its private alternatives business. In recent months, the firm completed a series of high-profile hires, put some of its businesses under the PGIM Private Alternatives banner, and signaled it plans to grow that line through organic growth and acquisitions.
PGIM announced its several moves in September, with the announcement of the group and the appointment of Eric Adler as president and CEO of PGIM Private Alternatives. Adler previously served as president and CEO of PGIM Real Estate and chairman of private equity.
In October, PGIM appointed Dominick Carlino as global head of alternative investments. As part of his mandate, Carlino is responsible for developing and distributing alternative investments tailored to the wealth management channel, including limited liquidity vehicles that have become increasingly popular among asset managers and wealth advisors. Carlino previously served as managing director, head of alternative investments distribution at Merrill Lynch.
The $310.9 billion business includes PGIM’s suite of investment options across private credit, real estate equity and debt, private equity, infrastructure and agriculture. That business includes PGIM legacy businesses, such as PGIM Real Estate and PGIM Private Capital, which have roots that go back decades, along with Deerpath Capital and Montana Capital Partners, two external asset managers that PGIM acquired in 2023 and 2021, respectively. (Deerpath adds to PGIM’s direct lending capabilities and Montana focuses on private equity secondaries.)
Under the revamped structure, PGIM’s underlying investment strategies and portfolio and originations teams remain distinct, with each affiliate maintaining its governance.
WealthManagement.com sat down with Carlino to discuss PGIM’s recent moves and its strategies for the wealth channel.
This interview has been edited for style, length and clarity.
WealthManagement.com: In recent months PGIM has made a series of hires and announcements, including putting several strategies under the PGIM Private Alternatives banner. Can you put those moves into context?
Dominick Carlino: I should start by saying that PGIM has been investing in the private markets for a long time. We’ve been a scale player in private credit for nearly 100 years. And our private real estate lineage traces back to 1970, so that’s more than 50 years. However, this has primarily been an institutional business.
Our recent moves, including the formation of PGIM Private Alternatives, are aimed at making PGIM’s alternative investment solutions more widely available to individual investors. We are seeing more demand emerging in the market. In lots of ways, the industry is responding to that, in part by making alternative investments more accessible structurally and streamlining the transactional experience. We’re doing that too. And our scale and experience in this business, given the complexities, are really important. As a firm, we’ve been managing assets in the private markets over many market cycles and have developed a risk management framework that is thoughtful. We have evolved our product capabilities organically, as well as through acquisitions and strategic partnerships. The goal is a diversified suite of offerings in more easily accessible structures, supported by a well-resourced sales and client service team globally. What holds up the use of alts, in large part, is a lack of education, a lack of understanding and complexity. We are doing our part to move the market along in that regard.
WM: Is some of that the use of limited liquidity vehicles like interval funds, tender offer funds, BDCs and non-traded REITs? I often hear people point to the fact that there are no capital calls, 1099 reporting instead of K1 tax reporting, and some liquidity is in place as mechanisms meant to make these investments more friendly to advisors and their clients.
DC: It certainly is. For larger investors or institutions, liquidity is less of an issue and K1s are less of a problem. There’s also the suitability threshold those investors meet. Many are deemed to be sophisticated and can access private markets more readily. But the market had to evolve for the individual investor. There’s more heterogeneity, different wealth levels, different qualification thresholds and different time horizons. We are using more mainstream structures to provide an outlet for more ready access and ease of use while remaining careful to still position these as long-term investments.
We’ve recently launched a suite of core perpetual funds, including a BDC, a tender offer fund and an interval fund, with plans to develop additional evergreen offerings. We are also expanding our lineup of specialized, private placement offerings, which provide for more distinct performance outcomes relative to strategies that are in a 40 Act registered fund or other perpetual structures.
WM: On the asset manager side, in serving the wealth space, it seems many companies are essentially building out menus. It’s not just one product, but a few that may touch on different strategies like private credit, private equity, real assets, real estate, etc. Is that a fair assessment?
DC: That’s very fair. We manage $310 billion in alternative assets. That makes us one of the largest globally. Whether it’s a wealth platform partner, advisor or client, they appreciate the diversity of solutions amongst asset classes, across public and private markets and across fund structures. It creates more scalable and enduring relationships. We have a long history in this space, and we have Prudential Financial sitting on top of us with a strong balance sheet and ample liquidity and clients value that as well.
WM: How are you going about getting in front of advisors and what are some of the obstacles to greater adoption of alts? A number of industry surveys show that while interest in alts is rising, usage remains limited. There’s lots of talk of greater adoption in the next decade and growth in the wealth space, but how do we get there?
DC: Education is super important. From the basics of the strategy, the value proposition, whether it offers diversification, return enhancement and/or capital appreciation, all of which are important. Whether you express it through public or private markets or a combination of the two; and then the structures you use to access the strategies. And importantly, the risks associated with different asset classes, strategies, structures and the liquidity tradeoffs you make to balance out the benefits they provide.
I think it’s important to educate around all of those aspects. It’s important to talk about the criticality of the manager, too. Particularly in fund structures, where you might have an inherent liability mismatch, you want to make sure managers are cognizant of risks, managing liquidity appropriately and providing for a good client experience throughout.
WM: I’ve also heard the argument that from a practice management standpoint, having alts as part of your playbook as an advisor can be a good differentiator, even if they aren’t for every client. It’s something to have in the toolkit.
DC: There’s no question about it. Alts are important for clients given the financial outcomes they seek to provide. Advisors, by being knowledgeable in these strategies and how they support a client’s financial goals, put themselves in an advantageous position. It’s good positioning for their current clients and for acquiring new clients. Importantly, they need to understand from an asset allocation perspective how alternatives fit within a portfolio.
WM: How does the interest rate landscape fit in right now? The Fed raised rates quickly but has signaled that may be over and we may even see cuts later in the year.
DC: We’ve seen over the past couple of years, in what has been uncertain, volatile markets, that the traditional 60/40 portfolio has been challenged. Asset correlation has risen. Rising rates have impacted a number of strategies and inflation has had an impact as well.
Investors recognized in 2022, when the 60/40 portfolio was particularly challenged, with stocks and bonds both down materially, correlations can rise at the wrong time. The diversity benefit you were hoping to get with a 60/40 portfolio may not be there when you need it.
In addition, because of cyclical and structural factors, we’ve seen banks retrench. So there was clear interest in a rising rate environment for direct lending and private credit. These are often floating rate loans that can adjust upwards in a rising rate environment. Similarly, as inflation rose, interest in private real estate grew, given its potential for capital appreciation and income, despite rising prices. Alts, because of the heterogeneity in the space, offer a lot of different ways to invest in the market, whether the economy is expanding, contracting or in a steady state.
WM: On PGIM’s front, what should we expect to see in the year ahead on the heels of the moves the firm has already made?
DC: You’re going to see accelerated development in our alternative investment business in serving individual investors, in addition to institutional investors. We’re adding resources in a lot of places. We are supplementing an already sizable product development team dedicated to alternative investments. We are also augmenting our large distribution force, which has 185 seasoned sales professionals, out there educating and servicing advisors and clients, by adding more dedicated alternative investment specialists. That’s happening today and will continue to happen. Last September, we announced Eric Adler as the head of PGIM’s private alts business. Eric’s leadership and focus on private market product strategy and business development will help us fill out an already robust set of offerings.
Ultimately, we’ve been a longtime player in alternative investments and this represents an ongoing evolution of our business. This is not us putting an initial stake in the ground. Instead, it’s about commercializing our existing capabilities, expanding upon them and delivering them to a broader set of investors globally.
