Alternative asset managers such as Blackstone Group (BX), KKR & Co. (KKR), and The Carlyle Group (CG) saw improved performances in 2H16 on improved broader markets (SPY) and rising holdings valuations.
The growth outlook seems to be improving for 2017. Globally, equity markets are expected to perform well, as major concerns such as the global slowdown and the economic slowdown in China seem to be waning. Oil prices (USO) are rebounding, the Chinese economy is stabilizing, and there’s marginal growth in the developed world.
Apollo Global Management (APO) rose 28% in 2016, mainly due to rises in the valuations of its portfolio holdings. Blackstone, the largest alternative manager, fell 8% in 2016 due to its subdued operating performance. KKR & Co. and Carlyle Group fell 1% and 2%, respectively, in 2016.
Alternative fund managers could see rebounds in the valuations of their holdings in 2017, as the markets have already gone through volatility-provoking events such as the US election, the Brexit vote, and the slowdown in China.
Fund managers deployed a record amount of dry powder across asset classes in 2016, with a preference for equity and real estate. These deployments could help them to garner higher base and performance fees.
In 3Q16, Blackstone beat estimates by $0.09 with reported economic net income (or ENI) per share of $0.57 on improved holdings valuations. KKR also beat estimates and posted ENI of $598 million, mainly due to a rise in its energy holdings. Apollo Global posted earnings per share (or EPS) of $0.58, beating estimates of $0.48 on improved holdings valuations.
However, The Carlyle Group missed estimates by $0.12 and posted EPS of $0.21. The company’s operating performance fell as a result of its global market strategies and lower managed assets.
Competition from traditional asset managers
Alternatives are expected to see continued competition from the ETFs of traditional asset managers such as BlackRock (BLK), Vanguard, and State Street (STT). ETFs are cost-effective and customized to broader indexes, sectors, and regions. As a result, retail and institutional investors deploy funds through ETFs or index funds.
In this series, we’ll be studying alternative asset managers’ expected performances, investments, strategic initiatives, assets under management, dividends, and valuations in 2017.
Let’s start by exploring alternatives’ private equity performances in 2017.