Opinions
David Burrows
KKR & Co. LP
KKR-N
DON'T BUY
Feb 14, 2017
Stock price when the opinion was issued
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Alternative asset management is a hot industry. This type of company provide the financing and has the products to sell to institutional investors and retail investors. Likes the industry as a whole. You can't make a living wage with bonds, and equity valuations are high. We're in a multi-year trend of assets flowing into private equity, especially as interest rates come down.
His favourite in the space is BN.
Chart shows it's done well. Interest rates coming down will help. Strong markets helps get a good price when they sell assets. Tough aspect is that more of the large institutional investors and pension plans are involved in private equity. More competition means they may overpay for assets. When they get money it's locked in, so they don't face the same liquidity crises that hedge funds do.
Private equity (used to be called leveraged buyouts). An American version of Brookfield is a way to conceptualize it. Manage $640B of private equity. Organic growth bolstered by recent acquisition, which takes them into insurance and annuities. Rapidly growing capital markets business. Secular advantage of private market flows are outpacing public market flows. Yield is 0.6%.
(Analysts’ price target is $168.67)He looks at relative strength, head-to-head battles and who's winning. As money flew out of financials, he sold his position. Big correction at the beginning of February. Picked up support ~$110, similar to the August low. Starting to come back. If it can break out above the trend line ~$125, looks encouraging.
Yes, if you can handle the ride. No, if you can't. When Trump was elected last November on promises of market regulation, these stocks ripped. Then, tariffs hit, and KKR shares plunged. You can nibble at it here at these lows.
With interest rates not coming down as fast as expected, and with volatility in the market, there are concerns about its deal-making ability. Expects to see a lot of liquid products over the next 1-2 years from this name and its peers. Headwinds from tariffs and regulations, but those are dissipating at the moment.
Doesn't really have an opinion on KKR. The love of his life is BN, and they've owned it for quite a long time. Likes that it collects giant fees from diversified assets. His preferred play on alternative assets.
KKR & Co (KKR-N) or Blackstone (BX-N)? He prefers an asset manager that is focused on public market equities. Asset classes are always being revalued. At certain times, certain asset classes do better than others. We have just gone through 10 years where regulation, compliance and rules around being a public company went through the roof, and it became very, very expensive. During that time, managing investing in private companies became very attractive, as they didn’t have the same problems. However, many private companies trade at higher valuations than public market companies, and yet public market companies are liquid every day and can be bought or sold. We have entered a period of many years where public market equities and developed markets, are likely to outperform. Asset managers in that area are under-owned and under-loved, and things are changing for the better. Multiples are expanding. Prefers Morgan Stanley (MS-N).