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Private Equity Stocks Surge Even as Warren Hammers at Industry

Melissa Karsh, Heather Perlberg and Katia Porzecanski

(Bloomberg) -- Private equity firms may be taking it on the chin these days, but the drubbing isn’t hurting their stock prices.

Led by Carlyle Group and Ares Management Corp., the largest publicly listed buyout firms have almost doubled this year even as Democratic presidential candidates including Elizabeth Warren have been highly critical of the industry. Apollo Global Management Inc. and Blackstone Group Inc. are up more than 80% each, while KKR & Co.’s value has increased by more than half.

The gains are the result of a few happy circumstances including the change in firms’ corporate structures and the industry’s boom. That explains why Samir Parikh, an analyst at hedge fund Islet Management LP, thinks private equity shares have further room to rally.

“The risk-reward continues to be compelling as they raise record amounts of capital, monetize assets and increase their dividends,” said Parikh, whose firm invests in the sector.

After years of lamenting that their companies were being unfairly undervalued by the market, some of the biggest players converted to corporations from partnerships. That allowed them to be added to major stock indexes and helped investors better understand once byzantine balance sheets.

So far this year, the industry has gathered $474 billion in private equity capital, a 55% increase from the same period in 2018, according to data compiled by Bloomberg.

By evolving beyond private equity and becoming one-stop-shops -- offering everything from private credit to hedge fund and long-only strategies -- these companies’ business models have become difficult to replicate. That should help the stock prices gain regardless of the broader market’s performance, Parikh said.

More Scrutiny

As private equity continues to expand and its influence on the economy increases, political scrutiny isn’t likely to abate.

Lawmakers show no signs of easing up. This week, Warren claimed Blackstone “shamelessly” profited from the 2008 housing downturn, which the firm denies. On Tuesday, a House Financial Services Committee hearing focused on private equity, with California Democrat Maxine Waters raising questions about whether Congress should act to prevent predatory practices.

Even with such pressure, few see gloom and doom ahead for the industry. Or as Devin Ryan, a senior analyst at JMP Securities, sees it: the market views recent political rhetoric “as more bark than bite.”

To contact the reporters on this story: Melissa Karsh in New York at mkarsh@bloomberg.net;Heather Perlberg in Washington at hperlberg@bloomberg.net;Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Alan Mirabella, Josh Friedman

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