With value investors struggling to find opportunities among traditional assets, alternative asset management may be a good place to look for deals. Most liquid strategies have had solid fee performance and there has been an uptick in both private equity and real estate transactions recently, both of which will drive greater distributions over the next two quarters, according to Jefferies equity analyst Daniel Fannon.
“Unlike in previous periods where investors had to wait until fourth quarter earnings to receive distributions, this dynamic has been pulled forward as realization activity has increased,” writes Fannon. Och-Ziff Capital Management Group LLC (NYSE:OZM) has $720 million in performance fee eligible assets coming in next quarter, which could bring them as much as $65 million in income for the quarter. The Blackstone Group L.P. (NYSE:BX) had $2.5 billion in accrued performance fees last quarter, mostly in real estate.
Recently, Bruce Greenwald carried out a virtual Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital. Greenwald and Lu covered multiple topics during the discussion, addressing everything from the value investor's approach to appraising businesses and what he had learned from his great friend Charlie Munger. The duo also discussed China's economy Read More
Equity markets in U.S.
Equity markets in the U.S. have been growing and Europe is on the mend, so performance fee generation should be on the rise as well, probably reaching the highest levels since the financial crisis began. Liquid funds at Och-Ziff Capital Management Group LLC (NYSE:OZM), The Blackstone Group L.P. (NYSE:BX), and Fortress Investment Group LLC (NYSE:FIG) were all in the mid-to-high single digit range, and according to Fannon earnings form these strategies are probably going to accelerate. He also expects Apollo Global Management LLC (NYSE:APO), the Carlyle Group LP (NASDAQ:CG), KKR Financial Holdings LLC (NYSE:KFN), and Oaktree Capital Group LLC (NYSE:OAK) to perform well for the rest of the year.
Fannon on capital markets
“The seasonal window for capital markets activity is poised to open up post Labor Day,” writes Fannon. “While exits are always lumpy, real estate metrics have improved materially over the past two years.”
While it’s dangerous to draw too much from a single data point, but it’s encouraging for people watching real estate markets that The Blackstone Group L.P. (NYSE:BX) may be getting ready to hold an IPO for Hilton. “The trophy property represents one of Blackstone’s largest positions (if not the largest) and would be symbolic of the firm’s ability to add value despite arguably buying it at the peak of the pre-crisis market.”
If The Blackstone Group L.P. (NYSE:BX) is right that it can turn a profit on Hilton after paying pre-market premiums, the rest of the real estate market can’t be that far behind.