As Benjamin Graham famously stated, the stock market often behaves like a voting machine in the short term and a weighing machine in the long term. This dynamic is currently playing out in the alternative asset management sector, where publicly traded leading firms have experienced significant short-term volatility but, we believe, remain attractive long-term investments.

A Track Record of Index-Beating Returns

In the world of investing, leading alternative asset managers, such as Blackstone (“BX”), Ares Management (“ARES”), Apollo Global Management (“APO”), KKR & Co. (“KKR”), Blue Owl Capital (“OWL”), and TPG Inc. (“TPG”), have consistently delivered market-beating performance since their respective initial public offerings.  (See Table.)  BX, which went public in 2007, has seen its stock deliver a Compounded Annual Growth Rate (“CAGR”) of 14% for 18 years, fueled by its private equity and real estate leadership, growing its Assets Under Management (AUM) to over $1 trillion. KKR, public since 2010, has generated a CAGR of 22% for 14 ½ years by leveraging its expertise in leveraged buyouts and expanding into credit, real estate, and infrastructure.  APO, public since 2011, has carved out a niche in private credit and insurance through its Athene platform, delivering a CAGR of 23% over 14 years.  ARES, listed in 2014, has thrived as a leader in private credit, achieving a CAGR of 26% for close to 11 years. OWL, a newer entrant since its 2021 IPO via a SPAC merger, has quickly established itself in the fast-growing private credit and GP stakes[1] markets. Its share price grew at a CAGR of 22% since its IPO. TPG, the newest public entrant, listing in 2022, has already shown promise with a strong early performance of 17% share price CAGR, building on its legacy in private equity and expanding into credit and real estate.

Fee-Based Business Model, Long-Term Capital & Incentive Fee Optionality

One of the most attractive attributes of these firms is their asset-light fee-based business model, which provides streams of recurring revenue regardless of economic conditions. The revenue streams, typically 1% to 2% of AUM, have been growing at double-digit rates for leading alternative asset managers as institutional investors shifted holdings to private equity, private credit, and other alternative asset classes in the last two decades.

Unlike traditional asset managers- mutual funds, ETFs, etc. – that allow daily redemptions by investors, (alternative asset managers often structure their funds with multi-year commitments or as perpetual capital structures, further enhancing stability by locking in capital for the long term and reducing redemption pressures seen in traditional funds. This stability ensures the predictability of their fee stream. It allows them to take a patient, strategic approach to investing, avoiding forced liquidations during market stress and capitalizing on long-term value creation opportunities.

In addition to base management fees, alternative asset managers’ revenue includes “carry”, or performance fees – earned when investments exceed certain return thresholds – that amplify earnings as investment gains are realized. For instance, KKR has noted that 62% of its AUM is carry-eligible, providing substantial upside potential as its private equity and real estate strategies mature. Although the earnings from “carry” are designed to be cyclical, they represent upside optionality over complete market cycles.

Strong Tailwinds Supporting Future Growth

The future looks bright for alternative asset managers, driven by structural tailwinds that directly benefit them.

First, pension funds, sovereign wealth funds, and endowments are increasingly allocating capital to alternatives.  Preqin estimates that alternative AUM will grow from $16.8 trillion in 2024 to $29.2 trillion by 2029 – a 12% compound annual growth rate[2]. This growth is fueled by investors seeking higher returns and diversification amid low yields in traditional fixed-income and volatile public equities. 

Second, the “retailization” of alternatives is opening new client segments, such as high-net-worth individuals and 401(k) plans, previously inaccessible to these firms.  Blackstone’s evergreen vehicles like BREIT and BXPE exemplify this trend alongside every other leading firm’s focus on private wealth channels.

Third, the retreat of traditional banks, demand from borrowers, and investors’ appetite for yield continue to fuel the growth in the private credit market. Leading alternative asset managers continue to expand their private lending platforms, which has brought more sophistication, scale, and accessibility to the market, attracting even more borrowers and investors.

Finally, global infrastructure, including digital infrastructure, needs – estimated at $100 trillion by 2040 by KKR – offer immense opportunities for alternative asset managers. These firms are capitalizing on the surging demand for digital infrastructure driven by AI, cloud computing, and global connectivity needs.  BX and KKR lead with large-scale data center acquisitions and expansions.  APO and ARES excel in financing and niche developments, while OWL and TPG focus on strategic partnerships and sustainability. 

These tailwinds suggest that the growth trajectory of these firms is not a fleeting phenomenon but a durable shift in the investment landscape.

Short-Term Volatility Presents a Long-Term Opportunity

In March 2025, major indices, including the S&P 500, entered correction[3] territory as policy, geopolitical uncertainty, and fears of an economic slowdown weighed on investor sentiment.  Despite their strong fundamentals, shares of BX, ARES, APO, KKR, OWL, and TPG experienced even more significant sell-offs, all declining close to or above 30% from recent highs.  (See Table.)

This disconnect between market price and underlying value echoes Benjamin Graham’s timeless insight.  In the short term, the market acts as a “voting machine”, swayed by fear and euphoria. But over the long term, it will be a “weighing machine”, reflecting the true worth of a business.  

We believe that the fundamental strengths of these alternative asset managers – their proven track records, robust fee-based models, and strong secular growth drivers – remain intact.  For investors willing to look beyond short-term noise, the case for investing in leading alternative asset managers remains compelling.  The recent sell-off has only widened the margin of safety, resulting in leading firms trading at approximately 3-6% free cash flow yields—see Table–very attractive levels considering the long-term growth potential of these firms.  Investors, of course, should conduct thorough due diligence to understand the specific risk profiles of each company before investing.

Table:  Six Alternative Asset Managers – Past Performance, Recent Declines and Valuations

	BX	ARES	APO	KKR	OWL	TPG
CAGR Since IPO	14%	26%	23%	22%	22%	17%
Years Since IPO	17.73	10.87	13.96	14.67	3.81	3.16
Price as of 3/11/25	138.14	143.01	130.42	112.11	18.86	48.63
Price Change from High	-31%	-29%	-31%	-34%	-28%	-33%
Current LTM DE[4]  Yield	3.5%	2.8%	5.7%	3.9%	4.2%	4.4%

Disclaimer

This article is for informational purposes only and should not be construed as a recommendation to buy or sell any securities mentioned herein. RCA and its clients may have, or may continue to hold, investments in some of the securities discussed. While every effort has been made to ensure the accuracy of the data presented, the author does not warrant or guarantee the completeness or accuracy of any financial figures, performance metrics, or other numerical data. Market conditions are subject to change, and past performance is not indicative of future results. Readers are encouraged to conduct their own independent research and consult with a qualified financial advisor before making any investment decisions. The authoris not responsible for anylosses or damages incurred as a result of relying on the information presented herein.

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[1] A GP stake strategy refers to an investment approach where investors, typically private equity firms, acquire minority ownership stakes in General Partner (GP) firms that manage alternative investment funds.

[2]  See: https://www.preqin.com/about/press-release/global-alternatives-markets-on-course-to-exceed-usd30tn-by-2030-preqin-forecasts#:~:text=Preqin%20forecasts%20the%20global%20alternatives,at%20the%20end%20of%202023.

[3] Correction is defined as a decline of 10% or more from the recent high.

[4] DE – Distributable Earnings – is a non-GAAP term used by firms to illustrate free cash flow available to equity holders, post various expenses, including SG&A, interest expenses and taxes.