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Private Equity Has Strong Q4, Asset Managers Disappoint on Outflows

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Private Equity Has Strong Q4, Asset Managers Disappoint on Outflows

Apollo Global Management LLC announced Q4 earnings today which fared well and beat analyst estimates. The net economic income rose a whopping 95 percent from the year ago quarter to $697 million or $1.69/share, the earnings exclude compensation costs and costs incurred from its 2011 IPO.

This is well above Street’s forecast of $1.03-$1.05. The GAAP earnings were $171.5 million, up from $10.9 million in Q4 2011. Apollo’s assets under management have now reached $113 billion which is a 51 percent increase. The good results bode well for Apollo’s fund raising phase that hopes to recruit $13 billion.

Apollo has done even better than its private equity competitors, The Blackstone Group L.P. (NYSE:BX) and KKR & Co. L.P. (NYSE:KKR) which reported a 43 percent and 22 percent increase in quarterly economic net income.

Apollo Investment Corp. (NASDAQ:AINV), Apollo Gobal Managment’s affiliate rose 1.5 percent on the earnings call. Apollo Investment Corp posted a net investment income of $0.21 per share and declared a dividend of $0.20 per share payable in 4Q2013. Apollo Investment’s assets are now at $2.78 billion.

Apollo’s earnings release is almost the last one to come from private equity firms and most of these managers have beaten Wall Street’s expectations. Among the few who underperformed the others is Legg Mason, Inc. (NYSE:LM), the firm posted a loss for last quarter, missed Street forecast and the net asset growth detracted last year.

Legg Mason has been trying to even out the acquisition costs it incurred after buying Permal Group in 2005. Credit Suisse sees the highest potential in near term for AllianceBernstein Holding LP (NYSE:AB), Affiliated Managers Group, Inc. (NYSE:AMG), Invesco Ltd. (NYSE:IVZ) and Franklin Resources, Inc. (NYSE:BEN) while the downside is seen for Federated Investors Inc. (NYSE:FII)  and Janus Capital Group Inc. (NYSE:JNS).

Outflows from mutual funds were up in fourth quarter of CY2012, adding the exit of $30 billion from assets in December, the quarterly outflows amounted to $70 billion. Due to the positive trends in the market, revenues underwent a healthy increase . However, compensation costs are expected to increase in the first quarter of 2013 and the companies themselves gave higher expense guidance for 1Q13.

Q4 EPS Asset Managers

Credit Suisse raised price target for BlackRock, Inc. (NYSE:BLK)  due to its Aladdin Solutions business and strong inflow into ETFs while reducing targets on T. Rowe Price Group, Inc. (NASDAQ:TROW). Asset Managers are pressured due to fluctuating fee rates. Legg Mason, Inc.’s (NYSE:LM) fee rate declined while BlackRock, Inc. (NYSE:BLK)’s rate was flat versus forecast.

Credit Suisse rates Apollo Global earnings as exceeding expectations and has therefore raised its price target and ranking of the company. Strong indicators from healthy performance fee and profitable monetization of portfolio makes Apollo an attractive holding.

Credit Suisse believes that the liquid state of Apollo’s assets gives it an edge in generating more cash and supports its dividend payments even in scenarios where returns are not as high as expected. Apollo’s portfolio is also flexible and is tuned to exiting and entering holdings when the opportunity arises. CS raised cash dividend estimate for 2013 to $2.35 and raised price target to $27 from $23.

AllianceBernstein Holding LP (NYSE:AB), Eaton Vance Corp (NYSE:EV) and Carlyle Group LP (NASDAQ:CG) have yet to announce their yea end earnings.

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