Really hard not to look at most of PE as just asset gatherers earning fees on “low vol” investments they never accurately mark to market bc if they did it would lower their hefty fees. What Apollo are doing with Athene (dumping their crappy PC investments into their insurance arm) is highly questionable too. Quasi-ponzi schemes at this point yet too big to fail now
I generally agree with your cynical take, but why would Apollo put crappy PC investments into their own business?
Apollo, unlike others, can at least claim more alignment (i.e. they are a giant shareholder in AAA). I'm not sure the degree to which that's marketing (and the returns are obviously going in the wrong direction) but it is more than others can say. I'm not sure what to make of AAA, tbh. It's clearly opaque lol
(A) I love the abbreviation "AAA" (the highest rating!).
(B) I understand that this fund will be included at 10% of the SSgA target date fund across the entire "glide path". This seems antithetical to the notion of a glide path, which ordinarily reduces risk as participants approach retirement. This means that for those approaching, or in, retirement, this fund is a larger percentage of the portfolio's risky asset component. For example, if the glide path calls for only 20% risky assets at an older age, this is half.
(C) On a webcast rollout, I submitted the question as to how they set the allocation among various classes of private assets, and they basically said "opportunistically" (your opportunity or theirs?). No fixed strategy. It appears to be whatever Apollo has on its balance sheet at the time. They market that Apollo owns most of the fund (or Athene, their insurer, does, at least) as a plus, because it means they believe in it. To me, that sounded like a Chevrolet dealer telling you "look at all the Chevy's on our lot -- we really believe in them" (or haven't been able to unload them). Also, on the webcast, they addressed liquidity concerns by noting that the other 90% of the assets in the target date fund are liquid - so if the target date fund experiences a lot of exits, those left will end up with a higher percentage of their portfolio in this.
(D) This fund, I understand, will be housed in a "collective investment trust," a special type of investment vehicle for US tax-qualified retirement plans only intended to be mutual fund-like except with less required disclosure. So if you're expecting lots of transparency, I wouldn't hold my breath.
Of course, I could be wrong, but this looks to me like an outlet for Apollo to reduce inventory and collect some nice fees on their main balance sheet portfolio on which they've been collecting nothing? It reminds me of the loan portfolio that Apollo's ARI REIT, trading at 77% of book, "sold" to Athene (but they're the same...) for 99.7% of book (see https://giftarticle.ft.com/giftarticle/actions/redeem/b6e8386f-1a67-4d4e-99e6-dc0d751e6f3b).
It will be interesting to see whether this or similar products gain traction with employers.
1. I also noticed that the target allocation is 10% throughout which to me makes little sense. Or if it DOES make sense, it raises questions about all of the other TDFs which do it differently.
2. RE: allocation among private assets, I agree: STT is letting Apollo decide what makes sense. Will STT then adapt other asset classes based on what Apollo does? My guess is that they shrug and say "it's only 10% of the portfolio, whatever". A related issue (I raised this on my Blackrock write up): are we to assume that Apollo knows how to market time among alternatives?
Also: Apollo's favored Alts are private equity and debt. Guess what Apollo mostly manages? Guess what Pru's favored alts are....and guess what type of assets pru mostly manages? (A: real estate). When you are a hammer....
3. As far as i can tell, it is not possible to know what assets AAA owns. Will Plan Sponsors be able to know what AAA owns? Becuase if not, its not hard to imagine them getting grilled in a court case in 2036, sued becuase of AAA's crappy relative returns:
Q: As fiduciary, Did you ask what assets were owned by AAA?
A: Yes, but, well, they don't disclose to us the things they own. Err, that's not how Apollo operates.
Q: You mean that based on your prudent process, pursuant to ERISA, you invested in this, knowing that you were not going to know the things in which you'd invest?
A: Yes.
Ooof.
My take: State Street isn't fully committed to this. If I could give State Street some free advice, (I guess I can, actually :)) I'd say:
Everyone else is zigging. ZAG. Plant the flag, stay away from Alts. Offer a simple, flexible, inexpensive product. Own the fiduciary high ground.
Re 2.: My sense is that SSgA is completely deferring to Apollo, and Apollo isn't looking at what makes sense for a retirement plan, but rather what they have on their balance sheet, and they presume, or can rationalize, that it's good for a retirement plan (if they even care). SSgA seems to be looking at this fund as an asset class, "alts" or "privates" or whatever, without thinking much about the different types (private equity, private credit, real estate, etc.). That it's only 10% of the portfolio, to me, makes it more insidious - it won't be that apparent if it's a drag on the portfolio, and the fees may not stand out, yet Apollo (and SSgA?) will profit greatly because the base (total amount invested in the TDF) is so large, or may grow to be large. The plaintiffs' bar may have their work cut out for them. And Trump's executive order may lead to lawsuit exemption, in which case, game on.
I’ll go even further—seems reckless by SSgA and just a way to collude with Apollo to dump even more illiquid assets on unsuspecting retail investors. PE is essentially hung right now so this along with NAV loans and extension funds is just another desperate and questionable way to provide exit liquidity for LPs…on hapless retail investors
yes. Part of me wonders whether State Street felt the need to have something 'out there' in the market. I'd love to know the economics to State Street of the Apollo arrangement. State Street's institutional passive TDFs are probably as low as 6-ish bps. It could (should?) be a nice windfall.
State Street dumping stuck PE and alts on retail. I guess this is the way to provide institutional LPs an exit from their underwater PE and alts investments?
Really hard not to look at most of PE as just asset gatherers earning fees on “low vol” investments they never accurately mark to market bc if they did it would lower their hefty fees. What Apollo are doing with Athene (dumping their crappy PC investments into their insurance arm) is highly questionable too. Quasi-ponzi schemes at this point yet too big to fail now
I generally agree with your cynical take, but why would Apollo put crappy PC investments into their own business?
Apollo, unlike others, can at least claim more alignment (i.e. they are a giant shareholder in AAA). I'm not sure the degree to which that's marketing (and the returns are obviously going in the wrong direction) but it is more than others can say. I'm not sure what to make of AAA, tbh. It's clearly opaque lol
Thanks for this write-up! A few comments:
(A) I love the abbreviation "AAA" (the highest rating!).
(B) I understand that this fund will be included at 10% of the SSgA target date fund across the entire "glide path". This seems antithetical to the notion of a glide path, which ordinarily reduces risk as participants approach retirement. This means that for those approaching, or in, retirement, this fund is a larger percentage of the portfolio's risky asset component. For example, if the glide path calls for only 20% risky assets at an older age, this is half.
(C) On a webcast rollout, I submitted the question as to how they set the allocation among various classes of private assets, and they basically said "opportunistically" (your opportunity or theirs?). No fixed strategy. It appears to be whatever Apollo has on its balance sheet at the time. They market that Apollo owns most of the fund (or Athene, their insurer, does, at least) as a plus, because it means they believe in it. To me, that sounded like a Chevrolet dealer telling you "look at all the Chevy's on our lot -- we really believe in them" (or haven't been able to unload them). Also, on the webcast, they addressed liquidity concerns by noting that the other 90% of the assets in the target date fund are liquid - so if the target date fund experiences a lot of exits, those left will end up with a higher percentage of their portfolio in this.
(D) This fund, I understand, will be housed in a "collective investment trust," a special type of investment vehicle for US tax-qualified retirement plans only intended to be mutual fund-like except with less required disclosure. So if you're expecting lots of transparency, I wouldn't hold my breath.
Of course, I could be wrong, but this looks to me like an outlet for Apollo to reduce inventory and collect some nice fees on their main balance sheet portfolio on which they've been collecting nothing? It reminds me of the loan portfolio that Apollo's ARI REIT, trading at 77% of book, "sold" to Athene (but they're the same...) for 99.7% of book (see https://giftarticle.ft.com/giftarticle/actions/redeem/b6e8386f-1a67-4d4e-99e6-dc0d751e6f3b).
It will be interesting to see whether this or similar products gain traction with employers.
This is so on point and very balanced.
1. I also noticed that the target allocation is 10% throughout which to me makes little sense. Or if it DOES make sense, it raises questions about all of the other TDFs which do it differently.
2. RE: allocation among private assets, I agree: STT is letting Apollo decide what makes sense. Will STT then adapt other asset classes based on what Apollo does? My guess is that they shrug and say "it's only 10% of the portfolio, whatever". A related issue (I raised this on my Blackrock write up): are we to assume that Apollo knows how to market time among alternatives?
Also: Apollo's favored Alts are private equity and debt. Guess what Apollo mostly manages? Guess what Pru's favored alts are....and guess what type of assets pru mostly manages? (A: real estate). When you are a hammer....
3. As far as i can tell, it is not possible to know what assets AAA owns. Will Plan Sponsors be able to know what AAA owns? Becuase if not, its not hard to imagine them getting grilled in a court case in 2036, sued becuase of AAA's crappy relative returns:
Q: As fiduciary, Did you ask what assets were owned by AAA?
A: Yes, but, well, they don't disclose to us the things they own. Err, that's not how Apollo operates.
Q: You mean that based on your prudent process, pursuant to ERISA, you invested in this, knowing that you were not going to know the things in which you'd invest?
A: Yes.
Ooof.
My take: State Street isn't fully committed to this. If I could give State Street some free advice, (I guess I can, actually :)) I'd say:
Everyone else is zigging. ZAG. Plant the flag, stay away from Alts. Offer a simple, flexible, inexpensive product. Own the fiduciary high ground.
Re 2.: My sense is that SSgA is completely deferring to Apollo, and Apollo isn't looking at what makes sense for a retirement plan, but rather what they have on their balance sheet, and they presume, or can rationalize, that it's good for a retirement plan (if they even care). SSgA seems to be looking at this fund as an asset class, "alts" or "privates" or whatever, without thinking much about the different types (private equity, private credit, real estate, etc.). That it's only 10% of the portfolio, to me, makes it more insidious - it won't be that apparent if it's a drag on the portfolio, and the fees may not stand out, yet Apollo (and SSgA?) will profit greatly because the base (total amount invested in the TDF) is so large, or may grow to be large. The plaintiffs' bar may have their work cut out for them. And Trump's executive order may lead to lawsuit exemption, in which case, game on.
I think SSgA must be pretty committed. They've partnered with Apollo on at least one other thing (https://www.etftrends.com/state-street-partners-apollo-launch-new-private-credit-etf/). They're an item.
I’ll go even further—seems reckless by SSgA and just a way to collude with Apollo to dump even more illiquid assets on unsuspecting retail investors. PE is essentially hung right now so this along with NAV loans and extension funds is just another desperate and questionable way to provide exit liquidity for LPs…on hapless retail investors
yes. Part of me wonders whether State Street felt the need to have something 'out there' in the market. I'd love to know the economics to State Street of the Apollo arrangement. State Street's institutional passive TDFs are probably as low as 6-ish bps. It could (should?) be a nice windfall.
State Street dumping stuck PE and alts on retail. I guess this is the way to provide institutional LPs an exit from their underwater PE and alts investments?