Bill Alpert

Investors are asking what's wrong with private-equity stocks, says Oppenheimer analyst Chris Kotowski. Banking stocks are up 13% this year, but the typical alternative-asset-manager stock is down 3%.

"It has been a pretty dramatic underperformance, particularly relative to the traditional financial intermediaries," he notes, in a Monday report.

Commitments have slowed from PE's traditional backers, such as college endowments. Private managers raised a third less capital in 2024 than they did in 2021. To offset that drop, the private managers hope to tap 401(k) investors. Monday, Blue Owl Capital said it will team with Voya Financial on products for that middle-class retirement crowd.

But that doesn't guarantee that private managers will generate great returns on that new money. There were few cash-outs and profit distributions from PE portfolios in 2025's second quarter, Kotowski admits.

Still, he's comfortable that the private-market malaise is temporary, not terminal.

"We have a simpler explanation for the underperformance of the private-market stocks this year," he writes. "The stocks simply got way ahead of themselves in late 2024 and early 2025."

By his calculus, the private managers rose to earnings multiples that were 165% of the S&P 500's, in January of this year. "In late 2024 and early 2025, you were paying quite a lot" for the stocks, says Kotowski.

The group's relative multiple has settled back to a more reasonable 150% now. Kotowski thinks a healthy stock market will furnish PE firms with opportunities to realize profits from their share of their corporate portfolios.

Carlyle Group is the most attractively valued of the firms Kotowski follows, with its stock down at a market-lagging 20-times his forecast for 2026 earnings. But Carlyle's core PE business lacks the growth prospects that the analyst looks for. He's more interested in Blackstone, Blue Owl, and KKR.

With its stock off 5% this year, the industry giant Blackstone strikes Kotowski as 7% undervalued, relative to his $175 target. That's not enough upside to move him to upgrade his Hold rating.

He prefers Blue Owl and KKR, and has Buy ratings on both. Shares of the private credit manager Blue Owl can rise 37%, Kotowski says, to a price target of $26. Shares of PE stalwart KKR, with 16% upside if they reach his target of $162.

The group's portfolio payouts will bounce back, he believes. "No doubt, private equity is maturing as an asset class," the Oppenheimer analyst writes. "We would encourage investors not to attribute too much secular importance to cyclical factors."

Write to Bill Alpert at william.alpert@barrons.com

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July 14, 2025 13:24 ET (17:24 GMT)

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