Alternative Asset Managers Outperforming Despite Bank Selloff

Alternative asset managers, including private-equity firms like Blackstone and KKR, as well as private credit specialists like Ares Management, have been among the few financial sectors that have performed well since the bank selloff in March last year. In fact, their shares rose by an impressive 75% in 2023, while traditional managers and banks saw their stocks decline.

According to Morgan Stanley analyst Michael Cyprys, these alternative asset managers are currently priced for perfection. In his preview of the group’s December quarter reports, Cyprys points out that the stocks have already factored in a projected recovery in capital markets and a decline in interest rates expected to take place in 2024. Despite this optimistic outlook, he selectively identifies Blackstone and real estate specialist Bridge Investment Group Holdings as having potential for further upside.

In agreement with Cyprys, Wells Fargo analyst Finian O’Shea also expresses cautious optimism in his preview note. O’Shea assigns Overweight ratings to Blackstone, Bridge, KKR, and Apollo Global Management.

Blackstone recently reported earnings for the December quarter that exceeded forecasts at $1.11 per share, marking a 4% increase compared to the previous year. However, due to challenges faced by the firm’s real estate portfolio throughout the year, full-year profits for 2023 declined by 24% to $3.95 per share. Nonetheless, investors’ attention is now shifting towards 2024 expectations, resulting in a 3% increase in Blackstone’s stock following Thursday’s report, reaching $123.49.

As alternative asset managers continue to outshine other sectors of the financial industry, their performance remains under close scrutiny by investors eagerly anticipating a successful year ahead.

When KKR reports on Feb. 6

According to O’Shea’s predictions, KKR is expected to report a profit of 96 cents per share for the December quarter. With an estimated earnings of $5.05 per share in 2024, O’Shea believes that the private-equity firm’s shares will increase by 10% to reach his target price of $93.

Apollo reports on Feb. 8

On February 8, Apollo is scheduled to release its earnings report. O’Shea forecasts that the company will report earnings of $1.76 per share for the December period. Based on a projected earnings per share of $8.10 in 2024, O’Shea predicts that the stock will rise by 12% to $110, with a multiple of 13.5 times.

Ares also reports on Feb. 8

Ares, like Blackstone, has a multiple of 25 times earnings. According to Cyprys, at the current price of $120, Ares’ stock appears to be fairly valued.

Bridge Investment will report on Feb. 28

O’Shea’s final buy recommendation is Bridge Investment, which is set to report on February 28. The expected earnings per share for December is 19 cents, while the forecast for 2024 is $1 per share. With a multiple of 12 times, O’Shea anticipates that Bridge stock can rise by 20% to $12.

Upside Potential in Bridge

Cyprys also sees potential for growth in Bridge Investment, setting a target price of $13. Despite being undervalued due to its real estate focus, Bridge has attractive holdings in apartments and warehouses. Additionally, the company is expanding its assets and management fees.

As a result, Cyprys is convinced that the alternative stocks are entering a golden age as their product offerings and clientele continue to expand. He maintains his belief in the long-term growth potential of the $10 trillion private market industry.

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