Alternatives are falling
Alternative asset managers such as Blackstone (BX) and KKR & Co. (KKR), have fallen in 2016. The Carlyle Group (CG) and Apollo Global Management (APO) have seen their stock prices rise on better-than-expected operating performances.
Over the past year, alternative asset managers’ stocks have fallen by 3%–25%, reflecting weak performances, changes in investing patterns, and a clear bias toward low-cost ETFs and index funds. Things improved in 2Q16 as equities and other asset classes rebounded. The Brexit vote led to short-term panic, but the markets have risen since then, reflecting higher valuations.
Asset managers with substantial dry powder are well positioned to take advantage of attractive buyout options. On the flip side, asset classes and equities have remained stable with weak fundamentals, which could result in either consolidation or correction in the current quarter.
Blackstone beat estimates
Blackstone beat Wall Street analysts’ consensus economic net income estimate of $0.39, posting an economic net income of $0.44. The company reported an economic net income of $520 million in 2Q16, mainly due to higher investment income, dividends, and base fees, partially offset by lower performance fees compared to the prior year’s quarter.
The Carlyle Group posted earnings per share (or EPS) of $0.35, compared to Wall Street analysts’ consensus estimate of $0.31. The company announced a quarterly dividend distribution of $0.63 per common unit. Its valuations improved in its Private Equity and Real Assets segments. On a pretax basis, its distributable income stood at $288 million, and its economic net income stood at $158 million in 2Q16.
KKR reported an economic net income of $191 million for 2Q16, mainly due to its strong public market appreciation and a rebound in its energy holdings. The stock has risen mainly due to its better-than-expected operating results.
Apollo Global was the only major player to miss estimates. The company posted EPS of $0.17 in the quarter, missing Wall Street analysts’ consensus estimate of $0.19.
Institutional and retail clients prefer ETFs over alternatives, as ETFs carry lower management costs. Alternatives face competition from traditional asset managers such as BlackRock (BLK), Vanguard, and other asset managers that form part of the SPDR S&P 500 ETF (SPY).
In this series, we’ll be looking at alternative asset managers’ deployments, fund performances, assets under management, strategic initiatives, and valuations.
Let’s start by exploring why alternatives’ private equity hasn’t been outperforming in 2016.