By Bill Alpert

Since late September, the managers of private-equity and private-credit funds have seen their stocks fall 15%-20% on fears that their deals and loans are souring. A note from Oppenheimer says the indiscriminate selloff offers buying opportunities.

Private-credit pioneer Ares Management got upgraded to a Buy on Wednesday by Oppenheimer's Chris Kotowski. He is also becoming more positive about Blackstone, but says it isn't yet cheap enough to buy.

"The proximate cause igniting the recent selloff in the alts were the back-to-back bankruptcies of Tricolor and First Brands, plus the Anthology software bankruptcy chaser," Kotowski says. But the first two firms had borrowed from banks and the syndicated loan markets, not private-credit managers. Anthology was a private-market deal, but Kotowski doubts that its struggles reflect a broader downturn.

"We don't think a whole lot has changed," he writes. Even in down markets, private credit has performed well over the last 30 years, according to the analyst. While it has grown rapidly, the growth has come from taking market share from banks, not from borrowers piling on more debt. Private credit is still a fraction of the debt market.

Another thing Kotowski likes about private lending is that people know it is risky. That makes everyone involved careful.

Credit-fund managers are choosy about who they lend to. Their investors know the risk and demand a premium. And the private-equity managers who do most of the borrowing, to leverage their deals, don't want to ruin their own performance by losing the keys to a bunch of their portfolio companies.

It may sound cynical, but credit losses are borne by investors in private credit, not the managers of the funds. A bad year won't cause a run on private-credit liquidity because investors are locked in for the fund's lifetime. Kotowski doesn't think those customers will drastically change their allocations based on a couple of bad years in a generally successful decadeslong stretch.

Ares Management has been earning incentive fees -- their share of income exceeding some hurdle rate -- every quarter for 21 years at its business development company Ares Capital, the analyst notes. And in any event, those incentive payments make up just 14% of the firm's total management fees, so missing a quarter or two wouldn't be a disaster.

As a result of the downdraft in alt-manager stocks, Kotowski says, Ares Management shares have moved into an attractive range. With the stock selling for 30 times his estimate for its distributable earnings in 2026, the management company is at a premium of around 30% to the multiple of the S&P 500. The Oppenheimer analyst thinks Ares deserves a 60% premium. That would put it at $180, leaving a potential gain of 20%.

"We view it as a relatively rare opportunity to buy this high-quality company at a reasonable multiple," Kotowski says.

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

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October 15, 2025 15:26 ET (19:26 GMT)

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