Analysts from Oppenheimer Equity Research believe the results for the fourth quarter of 2012 will turn out to be productive for private equity asset managers, particularly Apollo Global Management LLC (NYSE:APO), Carlyle Group LP (NASDAQ:CG), and KKR & Co LP (NYSE:KKR), as they benefit from special dividends ahead of tax increases.
According to the analysts, Apollo Global Management LLC (NYSE:APO), Carlyle Group LP (NASDAQ:CG), and KKR & Co LP (NYSE:KKR) should benefit from the $8.5 billion monetization available in the quarter, which is expected to generate at least $0.7 billion in carry.
Apollo is expected to report huge results for the quarter due to the very strong performance of companies under its portfolio including LyondellBasell Industries NV (NYSE:LYB) and Realogy Holdings Corp (NYSE:RLGY). The stock price of LYB surged from $51 to $58 per share. Apollo has approximately $5.4 billion investment in LYB, and the analysts estimated the private equity firm would rake in $1.8 billion as profit. “Mr. Market for once was very efficient and ran APO’s stock 26% in tandem with LYB and RLGY,” according to analysts.
The analysts commented KKR had a productive fourth quarter, although they believed the private equity firm “less efficiently tracked its fundamental developments.” The analysts estimated that KKR would have $0.9 billion in proceeds from carry generating funds and approximately $600 million of carry from its $17.6 billion 2006 fund. The analysts wrote, “This $600 million compares to a netting hole of $550 million as of September 30, which had to be made up before it starts paying carry.”
On the other hand, The Blackstone Group L.P. (NYSE:BX)’s flagship fund BCP V may not generate any carry, but the analysts believe the company’s real estate funds are increasingly well positioned.
The analysts also expect that Fortress Investment Group LLC (NYSE:FIG) will not be able to generate a carry from its $2 billion realization in RailAmerica, Inc. (NYSE:RA).However, its troubled Fund, 111-V, is expected to at least help uplift investors and facilitate future fund raising.
In a research note, the analysts wrote, “We think that the private equity business model is very powerful and only beginning to be understood by the Street. We think all stocks in our coverage are attractive, but our favorites remain KKR & Co LP (NYSE:KKR) and Fortress Investment Group LLC (NYSE:FIG) as we believe they are most dramatically undervalued.” The analysts maintained their price target of $19 for KKR & Co LP (NYSE:KKR) and raised their price target for FIG to $8.50.