Private Equity (PE) stocks have had a strong performance in the past few years. As shown below, the biggest American PE firms, including Carlyle Group, have outperformed the S&P 500 index in the past five years. Ares Capital stock has jumped by over 350% in the past five years while Carlyle shares are up by 81%.
PE stocks have had mixed returns in the past 12 months as deal-making trends stall and interest rate rates surge. The S&P 500 index has dropped by about 7% while others like Carlyle and Blackstone have dropped by more than 20%. KKR and Ares have continued doing well. So, here are the best publicly-traded PE stocks to invest.
Blackstone (NYSE: BX) stock price has underperformed in the past few months as concerns about its BREIT product. BREIT is an in-house REIT product that makes it possible for people to invest in real estate. While BREIT did well in 2022, the company saw increased outflows because of its outperformance over publicly-traded REITs.
I believe that these fears are unwarranted. For one, BREIT had a net asset value of about $74 billion compared to Blackstone’s total aum of over $975 billion. Further, Blackstone is a good investment because of its strong AUM growth. For private equity companies, fee-generating assets are crucial.
Further, the company has vast amounts of dry powder, with over $43 billion in assets. It has the highest amount of dry powder in the PE industry. This is important, especially if the world does indeed move into a recession. It means that the company has enough liquidity to execute deals.
Meanwhile, Blackstone has a diverse business that is made up of real assets, private equity, credit and insurance, and other solutions. Further, the company is founder-led and has a relatively cheap valuation of trailing PE multiple of 18. The icing on the cake is that the company has a dividend yield of about 4.6.
Carlyle Group (NYSE: CG) stock price has severely lagged other PE companies. Therefore, this is a contrarian investment considering that the company recently welcomed a new CEO. The main reason why Carlyle has lagged is that, unlike other firms, its AUM growth has been relatively slow. Unlike the likes of Apollo Global Management and Blackstone, it lacks permanent capital. The other firms have invested in insurance companies that provide them with deep liquidity.
Carlyle also has limited dry powder with about $10 billion, which is about 2.6% of assets. Therefore, with a new CEO, we could see Carlyle do well in the coming years as he reinvigorates growth. It is a relatively cheaper valuation and a healthy dividend yield of about 3.71%. The company’s trailing PE multiple of 10.46 is much lower than other companies.
There are cons when investing in Carlyle. For one, it is unclear whether the company’s founder will give the new CEO the mandate to run the company independently. Further, unlike other PE companies, its portfolio is relatively not well-balanced. Finally, its real assets mix of AUM stands at 15%, which is lower than other key companies.
KKR (LON: KKR) is one of the best private equity companies to invest in. It has over $500 billion in assets under management and over $30 billion in dry powder. The company’s real assets mix of the broader AUM is about 23.8%. Further, KKR has one of the most diverse portfolios across all areas of the PE industry.
KKR is also significantly undervalued with a PE multiple of 14.6 and a forward multiple of 14.2. This undervaluation is mostly because of its KREIT product. In January, the company decided to curb redemptions in the product. Like with Blackstone, curbing these redemptions is understandable since funds are invested in real assets.
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