Asset managers have been splashing the cash to beef up their private market operations with new hires and acquisitions galore.

Despite outflows and dismal returns on the public side of their businesses, fund groups are expanding or establishing private markets divisions.

Asset managers have several reasons to be keen on private assets; they’re seen as generating higher earnings and are stickier due to their long-term nature.

Many had already signalled they would expand their private-assets operations, and have followed through with that promise.

Now, however, there are signs that their enthusiasm may be cooling a little.

Hire and hire

Tom Thackerey, a partner at Heidrick & Struggles, said a move by traditional asset managers into private markets had been a big driver of the firm’s businesses over the past four to five years.

‘Any business growing will need people to invest that capital and look after investments. There has been hiring among all these non-traditional businesses,’ he said.

For example, Fidelity International has hired nearly 70 people over the past three years across investment roles, solutions, compliance, risk and operations.

At the end of last year, Schroders Capital, the fund manager’s private-assets arm, had about 400 employees, according to its website. Now it has 680 employees worldwide, following a period of recruitment and acquisitions.

Credit where it’s due

Recruiters say private credit has been the biggest area of focus.

In November, Pictet set up its own private debt team with four new hires. Earlier this year, Fidelity International announced the appointment of 12 people to its private credit team, including for senior roles in direct lending.

Other asset managers to have bolstered their private credit teams include Federated Hermes, Nuveen, JP Morgan, Generali and Loomis Sayles.

‘The whole world of private debt is getting bigger and bigger,’ said Rupert Bell, director of Dach at Private Equity Recruitment.

‘The compliance straitjackets that mainstream banks contend with means lending is more difficult. So, there is a big opportunity for private debt,’

He added that his firm’s Zurich office has seen the likes of Unigestion, Lombard Odier and Pictet looking to strengthen their alternatives teams.

There is also demand from family offices for specialist talent.

‘The whole world of family offices has already been important for a number of years. As you move into a down cycle, the advantage of permanent capital with no horizons and no closed-end fund deadlines create a big opportunity for that investor,’ Bell added. ‘My team is spending 10% of our time linked to private capital family money.’

Cooling-off period

Although asset managers have been putting their money where their mouth is, it might become more challenging to continue their hiring sprees into next year.

The problem they have now is investors are cooling on private markets. On the institutional side, limited partners have seen private market allocations go over their limits because the public part of portfolios fell so sharply.

It’s called the denominator effect, meaning they have to rebalance. According to the most recent survey by private equity group Coller Capital, they will do this by slowing the pace of commitments to private equity.

Meanwhile, Citywire surveys of fund selectors show fewer fund buyers view private markets as a growing area. As private market allocations slow down, the need to increase headcount for asset managers wooing these investors could also come down.

A recent report from recruitment consultants Johnson Associates indicated a slowdown in hiring at asset managers, as well as some layoffs as the pressure to cut costs increases.

For now, though, there has not been a big drop in activity. Rebecca Siciliano, managing director at Tiger Recruitment, said it continues to be a competitive market.

‘Anyone changing roles will expect to see a minimum of 5-10% increase in their package for moving. And the biggest pull for candidates is flexibility. Companies that can offer more flexible environments are able to secure the most talent,’ she said.