Changing models for earnings
Both traditional and alternative asset managers will see changes in their earnings expectations as analysts crank up new models post-Brexit.
Alternatives expect weakness in 2Q16 due to the weak performances of various asset classes. Blackstone (BX) and Apollo Global Management (APO) are expected to report EPS (earnings per share) of $0.64 and $0.36, respectively, in the same quarter.
Blackstone is expected to benefit from improved hedge fund and private market performances. Its record deployments in the previous two quarters will positively impact its base fees, supported by performance fees on improving holdings valuations.
In 3Q16, Blackstone is expected to see EPS of $0.68 as emerging markets find their bottom and commodity prices stabilize or improve marginally.
Carlyle Group (CG) and KKR (KKR) are expected to post EPS of $0.39 and $0.40, respectively, on energy holdings and distressed credit performance. They’re expected to make profits per share of $0.46 and $0.49, respectively, in 3Q16 on new capital deployment improvements in their public holdings.
Traditional asset managers
In distressed markets, investors tend to prefer ETFs with lower costs. They perceive alternatives as not providing superior returns compared to the overall market (IVV). For 2Q16, BlackRock (BLK) is expected to post EPS of $4.84 compared to $4.96 in the prior year’s quarter. For 2016, the company is expected to post EPS of $19.50 compared to $19.60 in 2015—a price-to-estimated EPS of 18x.
For State Street (STT), the Market expects EPS of $1.26 in 2Q16. In 2016, the company will remain focused on its key priorities of returning capital to shareholders, prudently managing expenses, and investing in its business to provide client solutions. The company will continue to target expenses in order to generate a positive fee operating leverage relative to 2015.
The asset management industry is suffering from a fall in asset value across the Americas, Europe, and emerging markets. However, BlackRock has been successful in attracting new client funds in almost all of its major offerings. The company is building on diversification across investment styles, distribution channels, and geographies in order to generate double-digit EPS growth.