PGIM Takes Majority Stake in Direct Lender to Boost Alternative Offerings

PGIM Inc. announced Tuesday the acquisition of a majority interest in Deerpath Capital Management LP and its associated affiliates.  

The partnership will enhance PGIM’s existing global investment alternatives offering through the partnership, the Newark, New Jersey-based firm announced. The firm currently has $237 billion in assets under management in strategies across real estate, private credit and other alternatives.  

“This partnership with Deerpath Capital reflects our ambition to further grow our alternatives platform,” said David Hunt, PGIM’s president and CEO, in a statement. “It complements PGIM Private Capital’s existing direct lending capabilities by adding expertise in the lower middle market-sponsored space, further enhancing the direct origination platform of PGIM Private Capital’s core middle market-focused direct lending platform.” 

A U.S. private credit and direct lending manager, New York-based Deerpath Capital focuses on the lower middle market for financing private equity sponsor-backed companies. Deerpath Capital co-founders James Kirby and Tas Hasan will continue as CEO and COO, respectively, managing the business, which currently has more than $5 billion in assets under management. 

“PGIM Private Capital has been a global leader in debt investing for more than 50 years and is an ideal strategic partner for Deerpath,” said Kirby in a statement. “Their deep understanding of the asset management business, global footprint and distribution network will help Deerpath grow our direct lending platform, while allowing us to preserve our investment and operational independence.”  

According to April research from PGIM’s retirement solutions division, DC Solutions, alternative investments are still not commonplace in 401(k) plans or within target-date funds popular with retirement savers. However, findings suggest a small increase in usage and interest between 2020 and 2022. 

In 2022, more DC plan sponsors reported offering alternative investment options on their 401(k) menu. In 2022, 21% of plan sponsors said they provided at least one option, compared with 9% in 2020. In TDFs last year, just 6% of plans used private credit or private real estate debt, while 9% of plans sponsors said they included private real estate equity. 

Obstacles to offering alternative investments include participant education, operational challenges and cost, which remained the top three hurdles in both 2020 and 2022. Between those two years, litigation risk saw the largest uptick of any obstacle, from 27% to 48%.  

“Litigation risk is real, but it is a plan sponsor risk, not a participant risk,” the study stated. “One driver of the trend towards simplified DC investments has been the perceived reduction in litigation risk; however, in 2022, we saw a spate of lawsuits against large plan sponsors who hired an all-passive target date manager. As fiduciaries, plan sponsors are required to do what is in the best interest of participants.”  

PGIM’s report suggested that to truly support participants’ retirement outcomes, DC plan sponsors take an “institutional approach” like their defined benefit counterparts, which have a track record of including alternative investments such as real estate. DC plan sponsors can adopt a mix of active and passive management, broad asset class diversification and selective use of alternative investments.