Alternatives have rebounded
Alternative asset managers such as Blackstone Group (BX), KKR (KKR), and Carlyle Group (CG) have rebounded sharply over the past three months on improved operating performances, new assets, and recovery in oil prices (USO). Apollo Global Management (APO) has risen 33% in 2016 on the back of a rise in the valuations of its holdings. Blackstone, the largest alternative manager, has remained flat in 2016 on its subdued operating performance. KKR and Carlyle Group have risen 9% and 2%, respectively, in 2016.
Alternatives could see valuations of their holdings rise in 2017, as markets have already gone through volatility-provoking events like Brexit, US elections, and a slowdown in China. Globally, economies are making a slow but steady recovery, although there is high volatility in major fundamentals.
Asset managers deployed a huge amount of capital in 2016 across the asset classes, which is expected to yield results in the current and upcoming quarters. Fund managers are sitting on record dry powder to take advantage of any pullback in the prices of various asset classes.
In 3Q16, Blackstone beat estimates by $0.09 with reported economic net income (or ENI) per share of $0.57. The company posted ENI of $687 million, mainly due to higher performance and investment income on a year-over-year basis.
The Carlyle Group also missed estimates by $0.12 and posted EPS (earnings per share) of $0.21. The company’s operating performance fell on global market strategies and a decline in assets under management.
KKR also beat estimates and posted economic net income of $598 million, mainly due to a rise in public holdings valuations and a rebound in energy holdings.
Apollo Global posted EPS of $0.58, beating Wall Street analysts’ consensus estimate of $0.48 on improved valuations of holdings.
Institutional investors are seeking cost benefits and preferring ETFs or passive offerings that have lower fees. These offerings are provided by traditional asset managers such as BlackRock (BLK), Vanguard, and State Street (STT).
In this series, we’ll be studying alternative asset managers’ investments, performance, assets under management, strategic initiatives, dividends, and valuations.
Let’s start by exploring alternatives’ private equity performances in 2016.