FS Investments eyes new public fund after Portfolio Advisors acquisition

FS Investments CEO Michael Forman has been at the New York Stock Exchange on more than one occasion to mark new fund listings and other milestones at his alternative investing firm.

© FS Investments

Most recently, FS Investments, which has $75 billion in assets under management, rang the opening bell at the NYSE on April 13 to mark the recent debut of FS Credit Opportunities Corp. a $2 billion-AUM fund that invests in public and private credit.


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FS Investments also manages FS KKR Capital Corp. a publicly traded business development company with $16 billion in AUM that provides debt to middle-market companies. In its current form, the fund is the result of a merger between FS KKR Capital Corp. and FS KKR Capital Corp. II that was completed in 2021.

As FS Investments moves to close its acquisition of private-market investing firm Portfolio Advisors, which has $38 billion in AUM, Forman told MarketWatch the firm was considering a potential listing of the planned FS-MVP Private Markets Fund.

The FS-MVP Private Markets Fund would be the successor to Portfolio Advisors’ $500 million MVP Private Markets Fund.

It’s a so-called 40 Act Fund that does not currently trade on an exchange but that generates public filings of its private debt and equity holdings. One leader in this space is Partners Group Private Equity (Master Fund), which had AUM of more than $12.7 billion as of December, with secondary stakes in private-equity funds.

Alternatives offer a way for investors to diversify outside of traditional stocks and bonds, as an asset class with less volatility that also delivers access to private credit in middle-market companies, Forman said.

The FS-MVP Private Markets Fund would allow FS Investments to offer individual investors access to equity investments rather than just credit.

“It’s the next big thing in the wealth channel,” Forman said.

While 40 Act Funds have been known to have multiple layers of costs for investors, Forman said the fees for individual investors have been falling in recent years to be more comparable to what larger institutions pay.  

Speaking about the current environment for putting money to work, Forman told MarketWatch he sees “lots of opportunities” in corporate credit and real-estate credit while remaining cautious and defensive.

“It’s about as good as it gets … but you have to be careful,” Forman said.

Debt in regional banks, both in private and public debt markets, has been trading below par, as a sign of “uncertainty as it relates to non-money-center banks,” Forman said.

Unrealized losses on fixed-rate securities held by banks have been weighing on valuations and pushing down the price of bank debt, he said, and banks with exposure to office-space mortgages are also seeing weaker bond prices.

“Office is a very difficult asset class right now,” he said, given that many employees at U.S. companies continue to work at home.

Acknowledging that the environment is rocky right now, Forman said he has experience investing during difficult economic times, starting from the early days of the firm.

Formerly a corporate lawyer, Forman had been working on his own acquisitions in the early 2000s when he was approached by a former client, Campus Apartments CEO David Adelman.

Adelman was interested in creating an investment firm that would help democratize alternative investments by making them more accessible to individuals.

The idea took inspiration from Vanguard’s work to open up stock investing through index funds. This firm instead would focus on corporate-debt and real-estate investments.

Forman led the formation of FS Investments in 2008 and launched its its first fund in 2009, just as markets began to recover from the collapse of Lehman Brothers. The fund helped spark interest in the nontraded business-development companies, an asset class that now tips the scales at hundreds of billions of dollars.

FS Investment Corp. went public on the New York Stock Exchange in 2014 as a business development company. At last check, it counts 350 employees and about $75 billion in AUM, including its pending acquisition of Portfolio Advisors. It manages more than a dozen funds across private credit, real-estate credit, opportunistic credit, structured credit, liquid credit and liquid alternatives, operated through a variety of structures including interval, closed-end and mutual funds, business development companies and real-estate investment trusts. 

Looking ahead, investors are mostly focused on deciphering when the Federal Reserve will stop raising interest rates so they can get a feel for where inflation will stabilize and when there will be a more predictable environment for banks to lend.

Forman said he’s keeping an eye on the office real-estate sector, which faces a $1.5 trillion wall of debt that will need to be refinanced in the next few years, just as banks become more cautious about lending.

Also read: KKR researchers see challenges ahead for 60-40 portfolio and suggest more alternatives

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