Here’s why private equity stocks like APO, BAM, Ares, OWL have soared

By:
on Feb 24, 2024
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  • Private equity stocks have risen to their record highs recently.
  • Most of these companies have pivoted to the private credit industry.
  • There is also strong inflows in alternative assets.

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Wall Street has been amazed by the recent surge in technology stocks like Nvidia and Super Micro Computer. All these stocks have surged to a record high because of the ongoing demand for artificial intelligence (AI) globally.

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But other companies are doing well too. A closer look shows that some private equity stocks have jumped to their record highs even as the deal-making industry goes through a prolonged winter. 

In all, the surge in these stocks has led to over $1 trillion in total value in the industry. Blue Owl Capital (OWL) surged to a record high of $18 this week. Similarly, Apollo Global Management (APO), Brookfield Asset Management (BAM), and Ares (ARES) are hovering at their all-time highs.

KKR vs APO vs ARES vs OWL

The performance of these stocks is ironic because of the woes the industry is facing as interest rates remain at a multi-decade high. According to the FT, dealmaking activity is languishing at its lowest level since 2012.

As a result, PE companies have been forced to either hold on to their positions for a longer period. Some have also started selling their companies to other private equity firms. 

There are four main reasons why private equity stocks have jumped sharply in the past few months. 

First, the rally is because of the ongoing stock market surge. The theory is that the portfolio companies are also benefiting as the public market jump. As such, if they decide to take some of their companies public, they are sure to get a better deal.

Second, most of these firms have pivoted to the fast-growing private credit industry. This is a booming industry that is benefiting as banks pull back from the sector. 

The most recent data shows that private credit assets totaled $1.3 trillion in 2022 and over $1.6 trillion. A recent study showed that private credit assets are doing better than PE funds because these companies charge a floating rate.

Third, global investors are diversifying to alternatives, which is evidenced by the strong inflows. The dry powder in the private equity industry has jumpe to a record $4 trillion in the past few years. Finally, the recent M&A activity in the PE industry has led to more demand. Blackrock acquired Global Infrastructure Partners (GIP) as it sought exposure in alternatives. As such, there are signs that other traditional asset companies will acquire PE companies to gain exposure to the alternatives.

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