From Barron's:
The largest publicly-traded alternative asset managers – Apollo, Blackstone and KKR – are undervalued for their existing business, brands and growth potential.And maybe buy some not so alt managers while we're at it.
So says Bernstein, which initiated coverage with an Outperform rating. Senior analyst Luke Montgomery writes that opportunities in real estate and credit potential dwarf the still-emerging scale for the trio. In contrast, other businesses in the financial services industry are struggling: commercial banks are selling commodity services, money center and capital market banks –”hamstrung by higher capital charges and new regulations” — are deemphasizing or abandoning lucrative businesses, and traditional asset managers are relatively mature and coping with the encroachment of passive strategies, he says.
On valuation:
“While sell-side consensus is long these stocks, P/E multiples are below 11x for alternative firms versus 16x for traditionals, and it is fair to say this is still a non-consensus call. Our unique sum-of-the-funds valuation approach shows that at current stock prices, investors only pay for cash flows from existing funds. Thus, they get going concern value for free, including economics on yet-to-be launched funds. More important, they get a free option on the significant growth opportunities we see for these firms. Alternative managers’ private market businesses are in the midst of a nirvana for portfolio company exits and performance fees, which has led some investors to worry that a realization cliff will materialize within a 2-3 year horizon. … this pause should prove short-lived.”Bernstein thinks while hedge fund and private equity strategies could face scale limitations, investing skill will reign....MORE
A deep dive from FT Alphaville:
The age of asset management
Andrew Haldane has declared the age of asset management upon us, but we suspect champagne corks will not be popping at BlackRock et al.
The title for the speech by the executive director for Financial Stability at the Bank of England appended a crucial question mark, and it turns out that the central bankers are only just starting to get heads around an entirely different set of too-big-to-fail problems to those of the banks. (Click for the full speech).
The good news is that asset management is going to be huge — spectacularly, monumentally more huge that it is now.
Current assets under management worldwide are in the region of $87tn, one year of global GDP or about three-quarters of the assets held by banks.
These will rise as the world gets richer. Case in point is the US....MUCH MORE
