What's News in Earnings: Why Some Money Managers Are Trailing the Market
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Hey, listeners, it's Monday, August 11th. I'm Miriam Gottfried for The Wall Street Journal. And this is What's News in Earnings, our look at the broad themes that stood out in the latest earnings season. So shares of publicly traded private equity firms, also known as alternative asset managers, typically rise and fall with public markets, often with slightly bigger swings in both directions. That's because their earnings are tied to the valuations of the companies they own in their portfolios. And those tend to track comparable public companies. But they also usually carry a significant amount of debt, which means that the ups and downs can be magnified. Ever since the start of this year, though, the stock performance of firms like Blackstone, Apollo, and KKR seems to have come a little bit uncoupled from the performance of the broader markets.
And President Trump's tariffs are only part of the story. Now, the performance of these companies matters because they're the biggest fee payers to Wall Street banks, and their earnings can also be a window into the health of the capital markets more broadly, especially the IPO market. Heard on the street columnist and Take on the Week host, Telus Demos, is here to take a look at the second quarter results for these asset managers and see if we can unpack what is going on. Hi, Telus. Hi. So, Telus, if there's one thing I can always say about the CEOs of publicly traded private equity firms after years of covering them. It's that they're perennial optimists. And this quarter was no different. Blackstone called it, quote, one of the best quarters in our history.
And Apollo talked up its record origination. But if things are going so well, why are these firms stocks all down year to date?
a couple of things that are bothering the market about alternative asset managers right now, why they haven't joined in the big market rally. One is a focus on what in the business they call spreads. That basically means how much money they make lending out to companies.
What market split is this episode introducing between private-equity firms and traditional asset managers?
They're not making a ton of money doing that right now relative to where treasury yields are. And so it's just not a great time for them to be lending money. The other thing is that they've got all these businesses that they bought back in the post-COVID boom, but in a lot of cases, they paid a lot of money for those things. And now they've really got to be selling them. And the longer it takes and the worse sort of prices that they might get now for those companies relative to what they paid for them a few years ago... really just means that they're not going to be returning as much to their investors. They're not going to be raising as much money from those investors. They don't get the same incentive fees like for the firms themselves that they might have.
There's some real concern that they're just not going to be able to sell what they've got now at good prices. And that's really dragging on the market's forward expectations for a lot of these firms.
And interest rates are a lot higher, right?
Yeah. Interest rates are a lot higher, which means that they are funding themselves more expensively. So the same squeeze that's felt by banks, private asset managers are not banks, but they have to get money in from investors and they have to deploy it in the market. And so private equity firms need to sell the companies they buy either to other companies, to other private equity firms, or to the public through IPOs. And while those markets...
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Chapters
3 chapters
1
What is the main topic discussed in this episode?
0:00–2:32
2
What market split is this episode introducing between private-equity firms and traditional asset managers?
2:32–5:40
3
Why have publicly traded private-equity firms like Blackstone and Apollo fallen behind the broader market this year?
5:40–9:16
Speakers
2 identifiedMore from WSJ What’s News
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