Private Capital Durable Despite Downturn, Goldman Analyst Says

In Brief:

Goldman Sachs senior analyst Alex Blostein joined Bloomberg's "Wall Street Beat" segment to discuss why large alternative asset managers have underperformed the broader market in early 2025. Despite short-term capital market challenges, Blostein emphasized that management fee streams have proven remarkably resilient through various market cycles.

Big Picture Drivers:

• Earnings risk: About 15% downside to consensus earnings forecasts for 2025-26

• Business evolution: Alternative asset managers' models have become more durable over time

• Fee stability: Management fee streams continue to grow through various market cycles

• Market expansion: Wealth and insurance channels represent growing addressable markets

Key Topics Covered:

• Stock underperformance: Major private capital firms down 20%+ year-to-date

• Systemic risk: Limited concern for broader market contagion from private markets

• Business model durability: Focus on predictable management fees versus volatile carry

• Retail access: Early days for private credit ETFs and democratized alternative investments

Key Insights:

• Model resilience: Management fees have grown through COVID, regional bank crisis, and other disruptions

• Returns perspective: Private markets generally outperform public markets during downturns, with less volatility

• Regulatory focus: Concerns primarily center on wealth channel exposure, currently still limited

• Liquidity constraints: 5% withdrawal limits help private funds avoid liquidity crises

By The Numbers:

• 15%: Potential earnings risk to consensus estimates for 2025-26

• $300-400 billion: Total private market assets in wealth channels

• Low single digits: Average private market allocation within wealth portfolios

• 20%+: Year-to-date stock declines for Apollo, KKR, and Blackstone

Memorable Quotes:

• "We don't think there's a systemic risk in private markets." - Alex Blostein

• "The management fee stream has been very durable, predictable and growing." - Alex Blostein

The Wrap: 

While market volatility has pressured alternative asset managers' stocks, Blostein sees this as an overreaction given the fundamental durability of their business models. The sector continues its transformation from relying on volatile performance fees to more predictable management fee income, potentially offering long-term value despite near-term capital markets challenges.