Interview, Fireside Chat, Other
Shaky ‘26 for alt asset manager stocks, but steady asset inflows
- A future "big bad bear market" is expected to serve as a critical barometer where alternative assets generate massive relative performance, alpha, and downside protection for portfolios allocating 10% to 30%.
- Structural growth is driven by the secular migration of global investors, particularly retail and international clients, from traditional channels into alternatives, with the shift from publicly traded partnerships to C-C corps enabling long-only ownership and index additions like the S&P 500.
- The decade-long outperformance of alternative asset managers, which began in 2014 from a low valuation base, concluded in 2024, though future earnings growth will be fueled by this continued migration and a low double-digit expansion in management fees.
- Private credit returns are projected to be lower in 2026 than the 8% achieved in 2025 due to Federal Reserve rate cuts, with an expected 6% average return for the current year characterized by industry bifurcation; however, the asset class remains resilient against credit quality fears and is distinct from the crowded, lower-return private equity sector.
- Private equity faces headwinds from saturation, narrowed returns relative to public markets, and a capital stack where equity investors are wiped out if senior debt fails, while infrastructure, real estate, secondaries, and hedge funds are identified as having superior secular growth prospects.
- Valuation dynamics suggest alternative asset manager stocks were trading at two standard deviation discounts to long-term averages in early 2025, presenting a runway for recovery as short sellers covering negative positions and potential index inclusions drive demand.
- Company-level growth will be driven by low double-digit fee growth combined with operating leverage, dividends, and buybacks for select names, while the sector's locked-up AUM provides defensive qualities that limit selling pressure.
- Macro risks include a narrow AI-driven economic leadership forcing private managers to sell expensive public software assets, alongside the realization that 13-14% private credit yields seen in 2022-2023 were unsustainable anomalies caused by bank market closures.
- Despite record dry powder and unsold assets resulting from high AUM, the sector maintains a bullish outlook based on the under-ownership of alternatives by the average American and the covariance benefits they provide to public market portfolios.