How Asset Managers’ Valuations Will Impact Brexit



Valuations taking a hit

BlackRock (BLK) and other traditional asset managers have been trading at premiums compared to alternative funds such as Blackstone (BX) and Carlyle Group (CG), mainly due to higher volatilities in the earnings of private equities.

Currently, BlackRock is trading at a premium, with a forward price-to-earnings ratio of 16x compared to the industry average of 12x.

BlackRock is leveraging on its scale and its diversified product offerings across major end markets. This enables it to attract a premium over its competitors. Its peers are trading at the following price-to-earnings ratios:

  • JPMorgan Chase (JPM): 9.5x
  • Bank of New York Mellon (BX): 15.3x
  • State Street (STT): 12.9x

Together, these companies form 8.7% of the Vanguard Financials ETF (VFH).

In 1Q16, BlackRock benefited from its global integrated model. The integrated model caters to clients around the world and provides innovative offerings across active, iShares, and alternative strategies.

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Blackstone is valued at 10x on a one-year forward earnings basis. It’s valued at a premium compared to Carlyle Group’s 9.0x, KKR’s (KKR) 10x, and Apollo Global Management’s (APO) 9.6x.

Blackstone commands a premium due to its diversification and relative outperformance. The company focuses on the performances of its portfolio companies. The company’s constant innovative offerings to its network of limited partners could be important factors in its future performance.

Carlyle is deploying record capital in order to take advantage of low valuations. The company deployed ~$8 billion worth of capital in the past six months and ~$11 billion in the past 12 months.

KKR saw positive performance fees, a fall in carried interest, and lower investment income in 1Q16. The company is buying back its own stock to take advantage of its lower valuations.

Apollo Global Management’s stock price has improved due to its share buybacks and record deployment amid lower valuations. The company expects improved operating performance starting in 2Q16.


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