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Our primary observations about 2023 activity:

• Acquired AUM was $284 billion across 32 transactions, up 36% relative to last year (itself a record) and 78% relative to the previous five-year average.

• Acquiring new investment capabilities was the primary rationale for these transactions (59% of acquired AUM), significantly more than the desire for consolidation (10%) or solely financial investment (32%).

• Acquisitions of four large multi-strategy credit managers accounted for 52% of this year's totals, with TPG's acquisition of Angelo Gordon ($55 billion) being the largest transaction of the year.

• Acquisitions of minority ownership stakes accounted for <2% of acquired AUM, down substantially from prior years.

Our report concludes with an outlook for 2024. We believe this higher level of acquisition activity will continue as alternative credit managers will be under pressure to build scale and scope.

Financial transactions saw a surge in 2023, setting a record of $90 billion, but this total bears examination. 90% of this total is driven by three large transactions: Mubadala's acquisition of Fortress and Generali's acquisitions (via Conning) of Octagon and Evolution. Conspiculously absent in 2023 were private equity funds who buy minority stakes; they made only two acquisitions, which together accounted for less than 2% of 2023's acquired AUM. (In contrast, between 2018 and 2022, on average there were six minority acquisitions per year with an average annual target AUM of $14 billion.) For 2024, we make three predictions.

First, we expect acquisition activity to remain elevated. Growth in demand for alternative credit, while slowing, is still strong relative to other asset classes. Both traditional and alternative investment managers believe that gaining and/or building exposure here is a strategic imperative.

Second, capability acquisitions should maintain their prominence. From 2012 to 2018, 42% of acquisition activity by AUM was capability in nature. However, since 2019, capability acquisitions have accounted for 68%. Why the shift in rationale? As we have written about in prior years' reports, we believe that alternative credit management is at an inflection point. For much of the post-GFC period, alternative credit managers have been largely insulated from the challenges facing the broader investment management industry due to the asset class's rapid growth. Gapstow believes that they are now beginning to confront these challenges: fee compression and margin erosion; undifferentiated products from too many providers; allocators wanting to work with fewer managers; and slowing growth. The shift in acquisition rationale reflects this new reality. Adding additional investment capabilities creates scale in the functions of capital raising, business management, and operations. And capability acquisitions broaden product offerings, better enabling acquiring firms to become "credit solutions providers." As a result, strategic buyers can bid more competitively against financial buyers, placing greater priority on building scale and scope, not simply restructuring ownership.

Finally, we predict an increase in acquisitions of firms who currently have minority owners. Over the last eleven years, we have tracked over 60 minority purchases. Here-to-fore, most of these firms were considered unlikely to be purchased because these managers had used the proceeds of the sale to address critical strategic issues. However, to reach their next set of strategic goals, many more will consider new strategic options.