Among financial sector stocks, only insurance companies have outperformed the diversified financial services industry. Of the six largest asset management firms, four are alternative asset managers, all of which have underperformed the S&P 500 over the past 12 months and for 2022 to date. The two traditional asset management firms in the top six also underperformed the S&P 500 index.
Unlike their traditional rivals that invest primarily in stocks, bonds and cash, alternative asset managers also may invest in private equity, venture capital, hedge funds, managed futures, art and antiques, commodities, derivatives and real estate. While originally targeted at high net-worth individuals and institutions, alternative asset ETFs and funds offer retail investors an opportunity to follow the smart money.
That tactic may not always be a winner, though. Earlier this week, Bloomberg reported that equity hedge funds like Tiger Global, D1 Capital, Pelham Capital and Lone Pine Capital were down an average of 15% for the year to date. Tiger Capital has tumbled by 52%, and Lone Pine Capital is down 42%.
Analysts at Deutsche Bank recently reviewed their coverage universe of both traditional and alternative asset management firms. Of the six alternative firms the bank reviewed, five have a Buy rating, and one is rated as a Hold. Deutsche Bank cut its price target on all six, expressing wariness about the health of the global economy, an extended correction in equity markets and higher tax rates.
Apollo Global Management
Apollo Global Management Inc. (NYSE: APO) is a private equity firm that invests in credit, private equity, and real estate. The firm’s market cap is around $26.7 billion. Deutsche Bank analysts have a Buy rating on the stock and have lowered their price target from $87 to $78. The analysts expect the firm to increase fee-related earnings by 17% annually between 2021 and 2024 and have a price-to-earnings (P/E) multiple of 17 on estimated after-tax fee-related earnings.
Apollo reports quarterly results on November 2, and consensus estimates call for earnings per share (EPS) of $1.28, which would be up 36.2% sequentially, on revenue of $2.56 billion, up 2.8% sequentially and 14.8% year over year. The consensus price target is $67.50, and the stock’s 52-week trading range is $45.62 to $81.07. Apollo pays a dividend yield of 3.36% and the payout ratio for the past 12 months is negative 30.2%.
Blackstone
The largest of the alternative asset managers, Blackstone Inc. (NYSE: BX), has a market cap of around $96.6 billion. The company specializes in real estate, private equity, hedge fund solutions, credit, secondary funds of funds, public debt and equity and multi-asset class strategies.
Deutsche Bank analysts have a Buy rating on Blackstone but lowered their $153 price target to $134. Fee-related earnings are expected to grow to a P/E multiple of 26 over the next three years. Among risks to the downside are sharply falling real estate values and adverse regulatory developments, perhaps especially related to carried interest.
Blackstone reports quarterly results next week, and consensus estimates call for revenue of $2.49 billion, down 40% sequentially, and EPS of $0.99, or 33.5% lower sequentially. The consensus price target is $116, and the stock’s 52-week range is $79.56 to $149.78. Blackstone pays a dividend yield of 6.15%, and the payout ratio for the past 12 months is 33.7%.
Brookfield Asset Management
Brookfield Asset Management Inc. (NYSE: BAM) focuses on real estate and REITs, renewable power, infrastructure, venture capital and private equity assets. The firm’s market cap is about $58.6 billion. Analysts at Deutsche Bank rate the stock at Hold and have cut the price target from $52 to $44. Faster-than-expected growth in the global economy, stronger-than-expected capital inflows and rising stock prices offer potential upside. Downside risks include a sharp drop in real estate values and slower growth in fee-related earnings due to reduced capital inflows.
Brookfield reports quarterly results on November 10, and consensus estimates call for revenue of $20.98 billion, down 13.6% sequentially, and EPS of $0.79, up 131.1% sequentially. The consensus price target on the stock is $54.88, and the 52-week trading range is $36.93 to $62.47. Brookfield pays a dividend yield of 1.44%, and the payout ratio for the past 12 months is 11.8%.
24/7 Wall St.Carlyle
Carlyle Group Inc. (NASDAQ: CG) has a market cap of around $9.2 billion. The firm specializes in direct and fund of fund investments in a variety of areas, including buyouts, privatizations, structured credit, and private placements.
Deutsche Bank analysts rate the firm at Buy, with a current price target of $36, down from a prior target of $43. Fee-related earnings are targeted at about eight times P/E. Downside risks include a “major” slowdown in acquiring new capital, an “inability to deploy capital effectively in its [private equity] funds,” adverse regulatory developments, higher corporate taxes and a lengthy search for a new CEO.
Carlyle reports quarterly results on November 8. Consensus estimates call for revenue of $1.13 billion, down 3.1% sequentially, and EPS of $1.07 down 8.2% sequentially. The consensus price target is $45.50, and the 52-week trading range is $24.59 to $60.62. Carlyle pays a dividend yield of 5.02%, and the payout ratio for the past 12 months is 19.3%.
KKR
Private equity and real estate investment firm KKR & Co. Inc. (NYSE: KKR) specializes in direct and fund of fund investments, including acquisitions, leveraged buyouts, credit and other investments. The company’s market cap is around $37.8 billion.
Deutsche Bank has rated the stock a Buy and lowered the $68 price target to $60. Fee-related earnings are projected at around 13 times P/E and spread-related earnings at about six times P/E. The analyst notes downside risks including investors’ failure to “embrace” KKR’s balance sheet strategy and saddle the firm with a higher P/E multiple, substantial losses on balance sheet investments, higher corporate taxes and unfriendly regulation.
KKR reports quarterly results late this month or early next, and consensus estimates call for revenue of $1.54 billion, down 13.7% sequentially, and EPS of $0.86 down 9.7% sequentially. The consensus price target is $65, and the 52-week trading range is $41.77 to $83.90. KKR pays a dividend yield of 1.4%, and the payout ratio for the past 12 months is 51.4%.
TPG
TPG Inc. (NASDAQ: TPG) offers investment management services to unconsolidated funds, collateralized loan obligations and other vehicles; monitoring services to portfolio companies; advisory services, debt and equity arrangements, and underwriting and placement services; and capital structuring and other advisory services to portfolio companies. The firm’s market cap is about $8.7 billion.
Deutsche Bank analysts have a Buy rating but lowered the price target from $45 to $40. The analysts expect fee-related earnings of 24 times P/E over the next three years. Threats to that forecast include the inability to increase capital inflows, slow product expansion, weaker-than-expected investment performance and failure to diversify.
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