Alternative asset demand, corporate conversions, and even a recession are positive catalysts for PE shops

Barclays is bullish for private equity stocks heading into the backend of 2019.

Barclays analyst Jeremy Campbell initiated coverage on several private equity firms on Monday Three companies received a Buy rating. Here’s a quick recap of the ratings and the price target.

• Blackstone Group (BX) – Buy – $56 price target
• Apollo Global Management (APO) – Buy $44 price target
• Ares Management (ARES) – Buy – $33 price target
• KKR & Co. (KKR) – Equal weight – $29 price target
• Carlyle Group (CG) Equal-Weight – $25 price target

Campbell notes that private equity firms are experiencing a positive “structural growth story.” With assets under management growing aggressively and significant dry powder at their disposal, the industry is on track to see total AUM hit $14 trillion by 2023.

A Boost in Alternative Investments

Campbell also noted that money managers want to boost their exposure to private equity and other alternatives. Citing survey data, Campbell noted that 65% of family offices, and more than 40% of respondents from pensions, endowments, and sovereign-wealth funds want to invest more in alternatives.

That’s on top of an already booming alternatives industry.

Last September, research by Campden Wealth showed that alternative investments comprised nearly 46% of family portfolios. At the time, real estate (17%) and private equity (22%) were the two largest forms of contribution.

The Corporate Shift for Private Equity Stocks

Campbell also highlighted the benefits of large firms shifting from limited partnerships to C-Corporations. The analyst further notes that an increase in common stock will likely boost ownership from mutual funds and indexes. These types of institutional investrs are limited to owning common shares of private equity stocks.

As a result, Campbell predicts “greater potential for stability and higher valuations than in the past.”

Is a Recession a Bad for Private Equity Stocks?

The Barclays analyst notes that PE stocks may dip if the financial sector faces broader economic challenges. However, the silver lining appears to be the fact that a recession could create opportunities for several companies who operate in distressed-asset investing.

In addition, with $2.1 trillion sitting on the sidelines at PE shops, a downturn could create a buying opportunity as they snap up cheap assets and hold them for the long-haul.

Finally, Campbell named Blackstone “Best in Class.” As we noted in June, the company could raise more than $100 billion this year.