The private capital industry is forecast to grow by 11.93% per annum between 2020 and 2025 to reach $13 trillion. Which firms will profit?
The private capital industry consists of private equity, venture capital, private debt, real estate, infrastructure, and natural resources. Private equity is the largest of these segments, with more than $3 trillion in assets.
Here are three private capital stocks that could benefit from this growth in investment flows.
Blackstone, Inc.
Blackstone, Inc. (NYSE: BX) is the world's largest alternative asset management fund, which specializes in real estate, private equity, hedge fund solutions, and credit.
The company currently has $940.8 billion in assets under management (AUM), representing a 38% year-over-year (YoY) growth rate. This has led to a near-record level of $683.8 billion in fee-earning AUM or a 37% increase YoY. The more inflows an asset manager attracts, the more revenue from fees it generates, thereby improving cash flows and dividends.
Distributable earnings increased from $1.07 billion in Q2 2021 to $1.99 billion in Q2 2022. The majority of this growth came from fees and realized performance revenues. This resulted in Blackstone paying a dividend per share 81% higher than the dividend paid this time last year, thus, generating more cash for investors.
However, Blackstone recorded a net loss for the period, accounting for unrealized losses from the company's investments due to markdowns on several of its major fund. This caused the company to generate a net loss of $29 million compared with a net profit of $1.31 billion in the previous year. This may continue over the coming months as deal-making slows due to economic uncertainty.
KKR & Co. Inc.
KKR & Co. (NYSE: KKR) is an investment company that provides alternative asset management, capital markets, and insurance solutions.
As of March 2022, the company had $479 billion in AUM, but this is forecast to increase when it announces its second-quarter results next week. The company has completed several acquisitions this year, such as Refresco Group NV in February. KKR has also announced that it is in acquisition talks with a few companies like Adler Group SA's real estate portfolio, which is valued at $1.2 billion.
This shows the company continues to remain active in the deal-making space while valuations are lower and other companies are holding back. Should economic conditions improve, KKR will benefit as its cheap acquisitions will generate greater returns.
However, the analyst consensus estimate for the company's Q2 earnings is 9.5% below reported earnings in the previous year. This may be due to unrealized losses from markdowns on its fund, similar to Blackstone.
Brookfield Asset Management, Inc.
Brookfield Asset Management (NYSE: BAM) is an alternative asset manager focused on real estate, renewable power, infrastructure, venture capital, and private equity assets.
As of Q1 2022, the company had roughly $725 billion in AUM, making it the second largest asset manager on this list. Brookfield Asset Management has over $379 billion in fee-earning AUM, which is up from $127 billion five years ago. It also aims to double current fee-earning assets in five years to $830 billion. The company is ambitious with relatively realistic targets that investors could benefit from.
The company also owns and manages one of the largest portfolios of cash-generating inflation-protected assets in the world, which is attractive for would-be clients looking for a place to store their money during this uncertainty. Like KKR, Brookfield has engaged in several acquisitions this year, with $5 billion worth announced already. These acquisitions may help it to grow and generate more performance-based revenue.
Brookfield Asset Management is also forecast by analysts to see earnings fall between Q2 2021 and 2022. The analyst consensus is that net income will decrease by 21.28% over the year from $1.01 per share to $0.79 per share. This will reduce the company's ability to grow dividends and repurchase shares.
