Time for Alternative Asset Managers Blackstone and Ares to Shine

Banking, finance, and taxes

Published: April 3, 2019 4:38 pm

Last Updated: January 30, 2020 10:30 pm

The world of alternative asset managers is quite different from the world of investment managers who simply buy and sell stocks, bonds and other publicly traded asset classes. When it comes to private equity and making loans to and investments in private companies, or just acquiring companies and keeping them private, it can be a serious chore when it comes to evaluating and valuing a whole portfolio of assets.

According to Credit Suisse’s Craig Siegenthaler, The Blackstone Group L.P. (NYSE: BX) and Ares Management Corp. (NYSE: ARES) are the firm’s two favorite picks with Outperform ratings in the alternative asset management space.

While the report notes soft realizations, a strong level accrued carry builds and fundraising make these attractive. The firm remains bullish on the industry.

Ares Management is an alternative asset manager with approximately $131 billion in assets under management of all sorts and its three primary targets are investment groups in credit, private equity and real estate.

Back in February, Credit Suisse called Ares its favorite long position of the sector. Its Outperform rating still comes with a $29 price target, up about 23% from the current $23.64 price. The firm likes the 6%-ish fixed dividend, the C-Corp. status and guidance for growth of 15% for the long-term and Ares is seen as an attractively valued stock for both income and growth investors alike.

Ares has a 52-week range of $16.18 to $24.44 and a consensus analyst target price of $26.30. Its market cap is roughly $5.2 billion.

Blackstone is alternative asset manager that operates globally and to many investment groups is considered among the top private equity funds in the world. Its four primary segments are in Private Equity, Real Estate, Hedge Fund Solutions and Credit. The company counts some $472 billion in total assets under management and Credit Suisse sees the private equity giant’s massive fundraising pipeline being ahead of schedule.

Credit Suisse noted after the latest Blackstone earnings announcement that it lowered the expected distributable earnings for 2019 and 2020 to reflect a weaker monetization outlook in the first half of 2019. Still, its $46 target price is derived using a 15 multiple on earnings using normalized methods. Its so-called Grey Sky scenario for would-be downside of $29 implies quite limited risk.

Blackstone’s units closed up 0.5% at $34.82 on Wednesday, in a 52-week range of $26.88 to $40.60. It carries a yield well above 6%, and the Credit Suisse target of $46 compares with a consensus analyst target price of $40.05. Blackstone has a market cap of about $40 billion.