Alternative asset managers such as KKR and Apollo Global Management are attracting the attention of investors hoping to tap into a growing trend in financial services — the migration of capital into private markets from public. Traditionally, these strategies have faced a stiff barrier to entry, including high fees and lengthy lockup periods when capital can’t be withdrawn. But an expansion of retail products has made private markets more attractive to investors seeking returns that could serve as a hedge against inflation, and protect against any potential shocks in the stock or bond markets. A recent survey of independent financial advisors by Bank of America found that nearly three-quarters of respondents expect to raise their allocations to private markets. About half those surveyed said they have just 1% to 10% of assets they advise allocated to alternative assets, while 16% have none. According to a Goldman Sachs note this month, if alternative allocations rose to about 15% of assets intermediated by advisors, the total addressable market would reach roughly $5 trillion. “It’s literally Inning One or Inning Two for that kind of migration that’s happening,” Eric Clark, portfolio manager at Rational Dynamic Brands Fund ( HSUTX ), said last month. “So, we’ve beefed up [holdings in] KKR and Apollo and Blackstone over the last couple of days.” The Rational Dynamic Brands Fund, a small, institutional portfolio with $80 million in assets and a 1.24% expense ratio, is highly concentrated, with just 24 holdings, according to Morningstar. That’s designed to give investors more exposure to the underlying bets, Clark said. Apollo is the No. 2 holding in the fund, with a more than 5% weighting. It’s “an area that nobody really seems to focus on,” Clark added. “And yet, in our own industry, we see it as the dominant driver of portfolio positions when you’re talking about it at the advisor level.” The investment case Alternative asset managers are coming off a bumper year. The group surged 51% in 2024, outperforming both the broader market and other financial stocks, according to a note from Goldman Sachs. Blackstone, the largest alternative asset manager with a roughly $211 billion market capitalization, rallied upwards of 30% last year. KKR and Apollo, noth added to the S & P 500 in 2024, surged more than 75% each. Even after those gains, investors are still optimistic on the long-term story for alternative managers, citing robust earnings growth forecasts. John Belton, a portfolio manager at Gabelli Funds, likes KKR, a holding in the Gabelli Growth Fund ( GABGX ), which has 1.8% of its assets in the stock as of November, according to Morningstar. KKR has “exposure to a lot of areas that could have a good year this year, when it comes to both returns and realizations,” Belton said. “It’s a very good management team. They’ve laid out a really compelling long term revenue, or [assets under management] revenue earnings growth path, which we think will just continue on this year, and it’s trading at what we think is not a particularly stretched valuation.” In particular, Belton likes private equity firms’ growing presence in the life insurance business, which started several years ago with Apollo’s acquisition of Athene, and which KKR continued with its purchase of Global Atlantic last year. By investing to earn extra yield on insurers’ long-dated liabilities, alternative asset managers have a source of funds outside their traditional method of raising capital from pension funds. “It’s an interesting kind of complementary business, which I think is pretty well suited to the private credit strategies that these guys had been building out over the last decade or so,” Belton said. However, in some corners, the investment strategy used by alternative asset managers has also faced regulatory scrutiny and been criticized as less liquid and more risky. Top picks Wall Street is trying to separate the wheat from the chaff among alternative asset managers. Wolfe Research analyst Steven Chubak this month said KKR and Ares Management are top picks, saying KKR earnings estimates are rising and Ares is improving its deployment of capital. Goldman Sachs said KKR and TPG are top picks, while it’s more neutral on companies such as Blackstone. Recently, it downgraded Blue Owl Capital to neutral, while calling Carlyle inexpensive and underappreciated. “These stocks are incredibly under owned,” Rational’s Clark said. “They’re underrepresented in the indexes at, you know, 0.5% or less. And yet, they garner the lion’s share of the asset flows that are happening in the wealth management channel in general.”
