Alternative Asset Managers Dodge a Bullet as Regulators Backstop SVB Depositors

We do not anticipate changing the fair value estimates, economic moat ratings, or uncertainty ratings for the three alternative asset managers we cover—Blackstone BX, KKR KKR, and Carlyle Group CG—following the crisis that erupted over the past week with Silicon Valley Bank.

We had started taking a much harder look at the firms in our coverage over the weekend, over fears that the collapse of the bank could lead to business failures among a lot of startups and early-stage technology firms that have been invested in by private equity and venture capital funds (given that these companies were only going to be able to access the $250,000 deposit balance guaranteed by the FDIC as opposed to the millions they had on deposit at SVB). However, the announcement from the Federal Reserve and the U.S. Treasury that the Deposit Insurance Fund will be used to fully reimburse deposits held in the collapsed Silicon Valley Bank has alleviated most of our concerns.

Most of these startups and early-stage technology firms burn through a ton of cash, and the fundraising/deployment/realization cycle for private equity and venture capital funds is still well off its normal pace (as rising rates and moribund equity markets have taken their toll), so not having access to the capital they’ve already raised and deposited in the bank could have forced a lot of firms to close their doors in relatively short order.

Alternative asset managers are accustomed to occasionally seeing bankruptcies or debt defaults among the companies they invest in, and none of them have balance sheet exposure relative to the companies they have in their private equity and venture capital funds (unless they are invested in the funds themselves). Still, a collapse of a meaningful number of startups and early-stage technology firms would have been detrimental to fund performance, which would have had a negative affect on base fee revenue and performance fees in the near to medium term.