Interview, Fireside Chat, Other
Shaky ‘26 for alt asset manager stocks, but steady asset inflows
- Market Context & Recent Performance:
- Alternative asset manager stocks experienced a decade of outperformance through 2024, driven by valuation expansion (migration from publicly traded partnerships to C-corp structures enabling index inclusion) and secular inflows into alternatives.
- Performance deteriorated in 2025 and early 2026 due to concerns over private credit quality, AI-driven software market disruption, and overcrowding in private equity reducing relative returns.
- The sector has rebounded in the last one to two months as short positions were unwound and valuations reached two standard deviation discounts to historical averages in March/April 2026.
- Private Credit Outlook:
- Fears regarding private credit quality were identified as largely manufactured; historically, losses require both a recession (which BofA economists do not expect) and a rise in unrealized marks (which has not occurred).
- Private credit returns in 2025 were positive 8%, with a forecast of approximately 6% for 2026 due to Federal Reserve rate cuts and the normalization of floating-rate loan yields from unsustainably high levels (13–14% in 2022–2023).
- Industry bifurcation is expected in 2026, with half the managers delivering performance above the 6% average and half below; superior performers are projected to capture all subsequent capital flows.
- Private Equity & Asset Composition:
- Media reports of "record dry powder" and $4 trillion in unsold assets are contextualized by record-high Assets Under Management (AUM), normalizing the absolute volume of unsold assets.
- Private equity is characterized as the "least favorite" profit growth business within the alternative manager space due to maturity, crowding, and narrowed returns relative to public markets.
- Growth prospects remain stronger in non-PE segments: infrastructure, real estate, secondaries, and hedge funds, which are currently underrepresented in the AI-driven public market leadership.
- Structural Investment Thesis:
- Alternative asset managers retain "never-for-seller" characteristics because their AUM is locked up, providing underappreciated defensive qualities and stability during market volatility.
- Significant adoption runway remains in retail and international institutional channels, where allocation levels are still low compared to mature US institutional channels.
- The primary long-term catalyst is expected to be a future bear market or correction, where alternatives are projected to generate massive relative performance and alpha due to their negative covariance with public equities.
- Valuation & Forward Outlook:
- Sector multiples remain significantly below the S&P 500 despite recent recovery, offering a valuation discount relative to peers.
- Management fees are growing in the low double-digit range, with some names achieving high double-digit growth, supported by operating leverage, dividends, and buybacks.
- Demographic shifts (e.g., aging baby boomers) are not primary drivers for this sector, unlike in brokerage platforms, as the sector relies on the gradual increase of allocations rather than specific generational platform preferences.