“We continue to see a strong operating backdrop for the alternative asset managers, and believe short-term market weakness creates attractive entry points,” say Morgan Stanley analysts Matthew Kelley and Toni Kaplan in their research note on the industry. “We forecast 16% average total return and reiterate Overweight ratings on The Blackstone Group L.P.(NYSE:BX), KKR & Co. L.P. (NYSE:KKR), and Oaktree Capital Group LLC (NYSE:OAK).”

A key point the analysts make is that the market appears to have ignored above-consensus ENI performance during Q4 and distributions by these companies, as can be seen from the chart and table below.

1-ms-stock-perf Alternative Asset Managers

2-eni-positive Alternative Asset Managers

Fundamentals are bolstered by an excellent fundraising environment, portfolio components trending higher than market and encouraging exit prospects.

The Blackstone Group L.P. (BX)

Morgan Stanley have an Overweight rating on The Blackstone Group L.P.(NYSE:BX) and a PT of $35. The stock closed at $31.20 on Friday.

According to the analysts, Blackstone will be driven by strong fundraising that will boost fee-paying AUM by 11%, a pick-up in realizations in RE and PE and increasing interest from pensions and sovereign wealth funds.

The following chart depicts the risk-reward profile of the stock.

3-bx-risk-reward Alternative Asset Managers

Read more about the outlook on BX in the ValueWalk article, ‘Blackstone Group: Money Is There For The Nimble.’

Last week, La Quinta Holdings Inc, a hotel chain taken private by Blackstone Group LP in 2006 in a $3.4B transaction, filed with U.S. regulators to raise up to $100 million in an initial public offering of its common stock.

KKR & Co. L.P. (KKR)

Morgan Stanley have an Overweight rating on KKR & Co. L.P. (NYSE:KKR) and a PT of $28. The stock closed Friday at $24.14.

The analysts are drawn to KKR’s prospects on account of its huge balance sheet, an expected growth of 9% in fee-paying AUM, higher allocations from institutional and high net worth individuals, and maturing investments in its portfolio companies.

4-kkr-risk-reward Alternative Asset Managers

Bond-holders in KKR-owned First Data Corp are cheered by the prospect of the company, which was taken private by KKR & Co. L.P. (NYSE:KKR) in 2007, making an IPO, judging from comments by CFO Ray Winborne on a conference call.

Oaktree Capital Group LLC (OAK)

Oaktree Capital Group LLC (NYSE:OAK) is the third alternative asset manager that is rated Overweight by Morgan Stanley with a PT of $65.

5-oak-risk-reward Alternative Asset Managers

The Morgan Stanley analysts perceive value in Oaktree Capital Group LLC (NYSE:OAK)’s expected CAGR of 8% in fee-paying AUM, the receipt of higher allocations from institutions, rising dividends and opportunity in its counter-cyclical strategies.

Read the transcript of Howard Marks’ conference call on OAK here.

Oaktree Capital Group LLC NYSE:OAK) is also likely to soon make its first Collateralized Loan Obligation (CLO) offering in Europe, according to Bloomberg.