Publicly traded alternative investment managers' earnings reports for the fourth quarter were a “mixed bag” with increases in fair value positive but below expectations, mainly due to the lower valuations of the firms' energy and credit assets, said a report by investment bank Keefe, Bruyette & Woods.
Meanwhile, capital flows to the firms were “generally positive” as many of the publicly traded alternative managers are actively fundraising. So-called fee-paying assets under management grew 7% year-over-year and could keep up the modest growth rate in 2015 as long as realizations remain high, the report said. Fee-paying assets under management include management fees, transaction fees, monitoring fees, advisory fees and other fees. It does not include carried interest, income derived from profits.
Realization levels, which reflect exits from portfolio company investments, were high as managers took advantage of continued high asset prices and low interest rates. Even so, net accrued performance fees were generally flat to down for most managers from the previous quarter, the report said.
“Early (first quarter 2015) realization activity suggests that we may have another mixed quarter of realizations if the current pace is sustained,” the report said.
Keefe, Bruyette & Woods' analysts expect Blackstone Group's real estate business to increasingly sell its portfolio of properties to “harvest embedded gains,” the report said.
Overall, Keefe, Bruyette & Woods' analysts expect the credit strategies of the publicly traded firms, especially Ares Management, Blackstone Group, Fortress Investment Group and Oaktree Capital Management, to be a steady source of realizations.