Alternative Asset Managers Under Pressure; Ares Management Receives Upgrade

Alternative Asset Managers Face Indiscriminate Selloff

U.S. alternative asset managers have experienced a significant sector-wide decline since late September, with stocks of private-equity and private-credit fund managers falling between 15% and 20%. This broad market correction has prompted Oppenheimer to upgrade Ares Management (ARES) from a 'Perform' to an 'Outperform' rating, setting a new price target of $180.

The Event in Detail: A Market Disconnect

The upgrade of Ares Management comes in the wake of a sharp selloff in financial stocks, which reset their average relative multiple from 165% in January 2025 to 108%, presenting what Oppenheimer views as a compelling buying opportunity for ARES. As of recent trading, ARES was down approximately 0.51% to $142.90 pre-market, having already shed roughly 19% of its value year-to-date. Similarly, Hamilton Lane (HLNE), another alternative asset manager, has seen a 17% decline year-to-date.

Analysis of Market Reaction: Exaggerated Contagion

The proximate cause for the sudden and indiscriminate selloff, which has impacted the alternative asset management sector by 16.3%, appears to be a series of bankruptcies in the private credit space. Analysts Chris Kotowski and John Coffey of Oppenheimer point to the failures of auto lender Tricolor and auto parts maker First Brands, followed by the educational software company Anthology, as catalysts. These events have been widely reported as cautionary tales of excesses within private credit.

However, Kotowski and Coffey argue that the market is "extrapolating its experience with traditional financial intermediaries to the Alts." They emphasize a crucial distinction: traditional financial intermediaries directly incur capital losses and illiquidity, whereas for alternative asset managers, these losses are primarily borne by fund investors. The impact on the asset managers themselves, in terms of fund performance, would typically be felt years down the line and would disproportionately affect less successful managers. This suggests that the current market reaction may be overstating the direct risk to alternative asset managers like Ares.

Broader Context and Implications

The volatility in the alternative asset management sector is not an isolated phenomenon but is deeply intertwined with a broader landscape of increased market uncertainty throughout 2025. This uncertainty stems from shifting fiscal, tariff, and monetary policies, alongside general economic growth concerns. While traditional asset managers have seen an average decline of 6% through mid-June, alternative asset managers have experienced a more pronounced average decline of 13% over the same period.

Despite this volatility, management fee rates for most alternative managers have remained largely stable. This resilience is attributed to the long-dated nature of their products and a relative absence of significant fee competition. Although organic growth for alternative managers softened during 2022-2023, fundraising gains and increased deployments contributed to improved results in 2024. However, 2025 is expected to introduce further headwinds as heightened policy and economic uncertainty limit new deployments.

The U.S. equity markets overall have shown fluctuating performance, with the S&P 500 index recording gains of over 3.5% in September. Concurrently, the October S&P Global Investment Manager Index (IMI) survey revealed a recovery in both risk sentiment and market performance expectations, with the Risk Appetite Index returning to positive territory at +4% for the first time since July. Notably, the financial sector reclaimed the top spot for bullish sentiment among U.S. equity investors.

Ares Management, with a market capitalization of approximately $31.52 billion, demonstrates a complex financial profile. Its Credit Group serves as the primary revenue generator. While its valuation metrics, including a Price-to-Earnings (P/E) ratio of 83.02, a Price-to-Sales (P/S) ratio of 6.24, and a Price-to-Book (P/B) ratio of 10.86, suggest it trades at a premium, technical indicators show a Relative Strength Index (RSI) of 25.22, indicating the stock is currently oversold. Financially, Ares has faced a revenue growth rate of -5.7% over the past three years but maintains a solid operating margin of 17.4% and a gross margin of 54.43%. Its Piotroski F-Score of 7 suggests a healthy financial situation, and a Beneish M-Score of -2.89 indicates a low likelihood of earnings manipulation.

Looking Ahead: Policy and Liquidity in Focus

Looking forward, the financial markets will continue to closely monitor the Federal Reserve's stance on interest rates and inflation. The current forecast suggests a federal-funds range of 2.25%-2.50% by the end of 2027, a significant decrease from 4.25%-4.50% in May 2025. However, concerns remain about potential inflation spikes driven by policies such as tariffs and government program cuts. Furthermore, warnings about declining market liquidity and rising real economic uncertainties, including stagflation and interest rates, could continue to influence the performance of private equity stocks, which have historically shown sensitivity to these factors ahead of the broader market.