P45. Private Credit and Alternative Managers Portfolio

Before I describe this portfolio, I want to set out plainly what I believe is happening in this corner of the market, because it is the reason this report exists. I am not an activist. I am a fiduciary, and my only job here is to point out to independent, objectively minded investors what I see, so they can decide for themselves.

For most of my career, the line between public and private capital meant something. Public markets gave ordinary investors liquidity, transparency, and a regulator standing behind them. Private markets were the walled garden of institutions that could afford to lock up money for years and do their own deep diligence. That wall is now being taken down on purpose. The current administration in the United States has actively encouraged private capital, both debt and equity, to play a far larger role with ordinary investors, including by opening retirement and pension channels to private equity and private credit products that were never built for the household saver.

The clearest signal of this shift is the public listing of SpaceX, trading under the ticker SPCX. A company carrying a multi-trillion-dollar valuation was brought to market on a public float of only about 75 billion dollars. That is a sliver of the whole. When so little stock is actually available to trade, the price can be steered. The stock was fast-tracked toward major indexes, which means passive index funds and the retirement accounts that track them are mechanically forced to buy it, regardless of price or value. The buying holds the quoted price aloft, and that engineered price becomes the mark that lets insiders sell mega-billions of their own holdings into the public over time. Desire on the part of the public buyer is not the point. The mechanics do the work.

I lived through 2007. To my eye this is worse than the Bear Stearns share buyback that, in hindsight, was the small tip of a very large iceberg before public markets rolled over in 2007 and 2008. That was one firm propping up its own stock. What I am describing now is a structural channel, blessed by policy, that can push richly priced private holdings into public hands at scale and normalize the prices through index buying rather than through honest price discovery. SpaceX is the first of these at this size. It will not be the last. In my judgment these are the black swans that could eventually tip an aging bull market into a serious decline.

I have built roughly 50 portfolios and I have never written a report framed this way. I believe it has to be done. The point of this portfolio is not to chase the speculation. It is to give the risk-averse investor a fundamentally sound way to participate in the growth of private markets without owning the speculation itself. The rest of this report explains how.

This portfolio is built for investors who want to participate in the growth of private markets through the toll collectors, the asset managers that gather and manage the capital that has left the traditional banking system, rather than taking on the direct risk of the leveraged borrowers underneath. The core philosophy is anchored in fee-related earnings: management fees charged on locked-up, long-term, or permanent capital that recur through market cycles and provide a quality, predictable earnings stream. We invest in the well-financed, superior operators who manage the funds, not in the leveraged funds themselves, which keeps our balance-sheet analysis honest and reinforces the Four Gate filter discipline. This portfolio explicitly excludes direct investments in speculative, story-driven public offerings such as SpaceX (SPCX), which fail the Gate One test for strong balance sheets and profitable operations.

The broad backdrop for alternative asset managers in mid-2026 is one of strong fundamental results colliding with loud, fear-driven headlines about private credit. The largest operators reported record or near-record fee-related earnings in the first quarter of 2026, even as a wave of redemption requests hit certain retail-facing private credit vehicles. Sector-wide redemption requests have run into the billions of dollars, and several flagship non-traded credit funds saw net outflows in the quarter. The well-capitalized managers absorbed this without distress, which is precisely the distinction this portfolio is built to capture.

At the same time, the convergence of public and private capital described in the warning above is changing the rules. Private equity firms, facing tougher institutional fundraising, are increasingly reaching the individual investor through interval funds, business development companies, and now retirement-plan channels. This is occurring while public oversight has stepped back. The Fifth Circuit struck down the SEC's private funds rule, and Supreme Court decisions have weakened the agency's enforcement tools, leaving a gap that is more likely to be filled by private litigation after the fact than by oversight before the fact. For a risk-averse investor, the response is not to avoid this enormous and growing space, but to own it at the right layer.

That is the appeal of the toll-collector model. These six managers do not depend on any single fund marking up or marking down. They earn recurring management fees on capital that is contractually locked up for years or, in many cases, permanent. When markets dislocate, their dry powder lets them buy. When sentiment turns against private credit, their fee streams keep compounding because the capital cannot simply walk out the door. They give an investor a fundamentally sound, cash-generative way to participate in the migration of capital out of banks, without carrying the direct, leveraged risk of the borrowers or the governance traps of a forced public listing.

Blackstone (BX)

Blackstone remains the preeminent force in alternatives. In the first quarter of 2026 the firm reported total assets under management of about 1.3 trillion dollars, up 12 percent year-over-year, and record fee-related earnings of roughly 1.55 billion dollars, up 23 percent. Its private wealth platform reached 310 billion dollars, up 14 percent, and the channel produced 10 billion dollars of sales in the quarter, of which 7 billion came through its perpetual (evergreen) strategies. The firm's flagship wealth credit vehicle, BCRED, did see net outflows of roughly 1.4 billion dollars as negative sentiment weighed on the channel, yet management absorbed sector-wide redemption pressure from a position of fortress liquidity rather than distress. With a diversified base across real estate, private equity, and credit, and a leadership position in AI-related infrastructure, Blackstone is positioned to deploy into a dislocated market. Its unmatched scale and brand in the private wealth channel provide a uniquely high-quality fee stream.

KKR & Co. (KKR)

KKR delivered some of the strongest results in its history in the first quarter of 2026, with record assets under management of 758 billion dollars, up 14 percent, and fee-related earnings up 23 percent year-over-year. In the private wealth channel, its K-Series suite of funds raised 4 billion dollars in the quarter and now stands at more than 38 billion dollars in AUM, with redemptions of only about 250 million dollars. Management said it was candidly surprised by the strength of flows despite the market noise. The firm has been careful to put its direct lending business in context: at roughly 39 billion dollars it is only about 5 percent of total AUM, and its private BDC footprint is smaller still, which limits exposure to the sector-specific worries dominating headlines. KKR's strength lies in its broad, integrated global platform and its growing base of permanent capital, which together provide a durable pipeline for fee generation.

Apollo Global Management (APO)

Apollo continues to distinguish itself through the sheer scale of its credit origination, crossing the 1.03 trillion-dollar mark in assets under management in the first quarter of 2026 and posting record fee-related earnings of about 728 million dollars, up 30 percent year-over-year. Origination reached 71 billion dollars in the quarter, up 25 percent, at an average spread of around 350 basis points over Treasuries and an average BBB credit rating. Chief Executive Marc Rowan has reframed the opportunity around a roughly 38 trillion-dollar investment-grade private credit market driven by industrial reinvestment, while dismissing the market's narrow focus on the smaller, levered-lending corner. Combined with its Athene annuities business, which supplies a permanent, sticky funding base, Apollo is less a simple lender than an architect of the new private credit paradigm, using its balance sheet to fund large, complex, investment-grade transactions.

Ares Management (ARES)

Ares is the definitive leader in direct lending and executed well in a tougher fundraising environment. In the first quarter of 2026 it reported record first-quarter fundraising of about 30 billion dollars in gross capital, up more than 45 percent year-over-year, with total AUM rising 18 percent to 644 billion dollars. Within that, U.S. direct lending raised 9.5 billion dollars and European direct lending raised 4 billion. The firm's wealth AUM surged 54 percent year-over-year to 68 billion dollars, reflecting growing appetite for a diversified product set that now reaches well beyond U.S. direct lending into infrastructure, alternative credit, and private equity. This diversification is a deliberate move to gain share as advisers seek to reduce exposure to pure-play levered lending. Ares also published a detailed, independently reviewed look at its software-lending book to address AI-disruption fears, concluding the large majority of that exposure carries low risk. Its superior sourcing and underwriting remain the key differentiators in a market where manager selection increasingly drives returns.

Brookfield Asset Management (BAM)

Brookfield is a premier owner and operator of real assets, which makes it a natural hedge against the speculative tone of the current market. In the first quarter of 2026 it reported record fee-related earnings of 772 million dollars, up 11 percent year-over-year, and had raised about 67 billion dollars year-to-date, more than half of all the capital it raised in 2025, helped by the large Just Group insurance mandate and a flagship private equity first close. Roughly 87 percent of its fee-bearing capital is long-term, permanent, or perpetual, which gives the fee stream unusual stability. The firm is completing its full acquisition of Oaktree, expected to close in the second quarter of 2026, which deepens its opportunistic credit franchise just as the credit cycle turns. Brookfield's model is built not on leverage or trading gains but on the long-term, contracted returns of essential infrastructure and renewable power assets, offering investors a high-quality, stable foundation.

Blue Owl Capital (OWL)

Blue Owl is the purist's play on permanent capital. Its model, built on GP stakes and long-term, locked-up investment capital, is among the most visible and predictable in the sector, with permanent capital accounting for about 85 percent of its fee-related earnings management fees. In the first quarter of 2026 the firm reported total AUM of about 315 billion dollars and fee-related earnings of roughly 394 million dollars, up 14 percent year-over-year. It raised 11 billion dollars across debt and equity in the quarter, including 2.9 billion dollars of equity through the private wealth channel, where nearly 70 percent of flows came from real assets, GP strategic capital, alternative credit, and GP-led secondaries, areas less exposed to the volatility of direct lending. The one honest caution is that its direct lending strategy posted a small net loss of about 1.1 percent in the quarter as spreads widened, a reversal from prior strength. Even so, the firm demonstrated the structural integrity of its model through the redemption wave, and its fee-related earnings remain highly durable.

Based on the most recent earnings reports and filings, all six names, Blackstone, KKR, Apollo, Ares, Brookfield, and Blue Owl, pass the Gate One test. Each demonstrates strong, durable, and profitable business models, and each is a preeminent toll collector in its corner of the private markets, with a balance sheet I judge fit and proper for a fiduciary portfolio. This report is a fundamental assembly only. It does not promote any of these names to a holding. The final decision on promotion will be determined by a rigorous application of Gates Two, Three, and Four, which require my live technical, relative-value, and risk-management readings.

The following publicly traded names operate in the same space, carry meaningful institutional and retail followings, and are of sufficient size and liquidity to be considered by institutional capital. They are listed for completeness and are not recommendations.

Carlyle Group (CG): A large, diversified global private equity and credit manager with a growing fee-related earnings focus.

TPG Inc. (TPG): A scaled alternatives platform spanning private equity, growth, and, through its Angelo Gordon acquisition, credit and real estate.

EQT AB (EQT, Stockholm): A leading European private markets firm with strong infrastructure and private equity franchises and a global investor base.

Brookfield Corporation (BN): The parent of BAM, offering a more capital-heavy, balance-sheet-led route to the same real-asset and credit franchises.

Patria Investments (PAX): The largest alternatives manager focused on Latin American private markets, with a fee-centric, multi-strategy platform.

This report is for informational purposes only and is not a solicitation or an offer to buy or sell any security. It is not investment advice. Bill Cara is a fiduciary (retired June 2026) who invests in companies, not stories or concepts. The Four Gate discipline is a framework for analysis, not a guarantee of future results. Readers are advised to do their own research or consult their own investment advisor before making any investment decisions. Past performance is not indicative of future results.