The week just ended was a rather agitated one for markets, especially for overseas listings, where uncertainty raged about the possible consequences on the U.S. economy of the Trump Administration‘s introduction of trade tariffs. While on the alternative asset management front, stocks in the U.S. have been hit by the surprise announcement of the possible cancellation of the existing tax break for carried interest (see here an other article by BeBeez).
On the tariffs front, it is clear that the Trump administration seems determined to introduce them as they make it possible to at least partially offset the drop in tax revenues resulting from the rate cut, among the former tycoon’s central campaign points. However, duties, especially those against Canada and Mexico, would come at a cost in terms of higher inflation because of their impact on supply chains.
The most immediate consequence has been the spread in the market of the expectation that the Fed for this year will not touch rates, and as mentioned several times in this column, interest rates are the key driver of the equity prices of the proven real estate capital managers included in BeBeez‘s selected portfolio on eToro and reported on the Trading Floor page.
It is therefore not surprising that the top of the ranking by performance was the preserve of managers specializing in financing real estate projects such as KKR Real Estate Finance Trust (+11.4 percent). The real estate finance division of the private capital giant of the same name benefited most from its dazzling results for the fourth quarter 2024, released early last week (see the press release here and the presentation here), which saw an explosion in earnings per share for the period, thanks largely to far lower loan loss provisions ($4 million versus just under $39 million) than those made in previous quarters. This resulted in earnings per share of 31 cents, compared with the 30 cents expected by the market.
If these results gave wings to KKR Real Estate Finance, the runner-up, Ares Commercial Real Estate (+5.5 percent) benefited from expectations for an interest rates stabilization, which should support the cash flows originated by the business and thus improve the stock’s returns, which are far below the market average and have led the stock to depreciate 44 percent over the past 12 months.
On the lowest step of the podium is Hamilton Lane (+5 percent), a manager active in several asset classes ranging from private equity to private debt, venture capital to funds of funds. The Philadelphia-based group also benefited from an excellent quarterly report, its third of fiscal year 204-25, also released last week (see press release here), in which an 11 percent growth in management fees over the same quarter last year stood out.
Right off the podium was Trinity Capital Inc. (+4.2 percent), a private equity portfolio manager based in Phoenix, Arizona, which owes its gains for the past eighth to preliminary estimates for the final quarter of 2024 (see the press release here) judged very favorably by analysts.
Next ranked two other private credit managers with an immp real estate focus, namely Blackstone Mortgage Trust (+4 percent) and Apollo Commercial Real Estate Finance (+2.8 percent), which, having not released particularly price-sensitive news, benefited from the, positive for them, expectations of rate stabilization.
At the lower end of the table, however, were the stocks of alternative asset management giants, as mentioned, drowned out by the prospect that carried interest may return to being taxed as earned income instead of capital gains. Losing the most was KKR, with an 11 percent thud, despite framing 2024 accounts, especially for management fees, up 37 percent over 2023 to $3.3 billion, and adjusted earnings per share, up 38 percent to $4.7 (see press release here). But in this case it is also a sell on the news. In fact, the stock of the group founded by Jerome Kohlberg, Henry Kravis, and George Roberts had gained 17 percent in the previous three weeks, precisely on expectations of record annual accounts. More limited declines in the past week for TPG (-6.51 percent), Apollo Global Management (-4.40 percent), Ares Management (-3.98 percent) and Blackstone Group (-3.86 percent).
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