The stocks of firms that buy stocks had good December quarters. That made up for their lousy showing in the early part of the year and let them finish 2023 with returns that averaged about half the 24% gain of the
S&P 500 index.
After their fourth quarter rally, many asset managers may be due for a flat performance as 2024 begins, wrote
Piper Sandler
analyst Crispin Love in a Tuesday note. That said, he expects certain niches to enjoy a continued tailwind. He has Buy ratings on alternative asset giant
Blackstone,
and private credit firms like
Hercules Capital.
“Rates and stocks rallied in 4Q23 as optimism abounds for rate cuts in 2024,” he said, “but we believe there are still reasons to be cautious on the near-term outlook in the sector.”
Rate cuts are likely, Love believes, but a slowing economy could keep a lid on the acquisition deals that provide the big payoffs for many asset managers. So the analyst is broadly cautious, even though his ratings are roughly split between Buys and Holds.
It has been a tough few years for traditional asset managers, as investors pull money from actively managed mutual funds and shift it to passive strategies. So, like most analysts surveyed by FactSet, Love has a Neutral rating on the fund manager
SEI Investments.
Alternative asset managers like Blackstone—which runs private equity, hedge funds and real estate pools for institutions and the wealthy—have been raking in cash. The Piper Sandler analyst has an Overweight rating on Blackstone. He sees it leading in what he calls the “Alternatives Era,” where he expects such strategies to expand their share of the world’s investible assets, from about 10% today, to 25%.
Another optimistic part of his 2024 outlook is the private credit niche. Commercial banks retrenched last year, leaving private lenders the opportunity to step in and earn double-digit returns by lending to solid borrowers at the high interest rates prevailing. So he’s got an Overweight rating on Hercules Capital.
“We are bullish on private credit and expect private credit to continue to be a bright spot in 2024 as insurers and retail increase allocations to private credit,” wrote Love.
Write to Bill Alpert at [email protected]
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