“At the end of the day, you are better off being invested in one of those fund than you are investing in the units of these publicly traded firms,” Warren concludes. Greggory Warren, a senior stock analyst with Morningstar, says that because of their complicated limited partner structure and the potential that firms won’t easily be able to raise new funds to replace ones that are expiring, stock investors may be better served investing in traditional asset managers like Franklin Resources, Invesco, Affiliated Managers, and Blackrock with more direct earnings streams. Shareholders get a taste of the potential manager investment savvy by way of secondary management fees - smallish 1 percent to 2 percent fees paid to firms opening funds with billions in investor assets - and on a share of the manager’s realized investment gains on those funds, usually paid out in dividends. Private-equity and debt-focused funds may offer above average returns for their limited partner investors, but those returns don’t go directly to public shareholders. As opposed to being the latest Wall Street snake oil, focusing on management fees and the expectation of increasing investment gains indicates alternative managers may be poised for strong, stable earnings, and dividends. If the alternative asset manager sector is to live up to expectations as publicly traded stocks, understanding the return profile of these companies is the starting point for a re-evaluation. Analysts that cover alternative asset managers argue that the sector needs new stock valuation methodologies altogether. The issue may be that investors view these companies in the wrong light as Wall Street tries to take them public.
It would be a mistake, though, to view the weak Oaktree deal as a sign that the alternative asset manager can’t be an attractive investment.
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