In a new report, Oppenheimer analyst Chris Kotowski discusses the differences between private equity-based “alternative” asset managers and “traditional” asset managers. According to Kotowski, the alternative managers are blowing the competition out of the water.

“We believe that the private equity (PE) based asset managers have the best business model that we have encountered in more than 30 years of following financial stocks, but the shares languish at less than 7x our 2017 cash distributable earnings (DE) estimates,” he explains.

In the past five years, alternative managers have averaged a 14.5 percent growth in assets under management (AUM), roughly double that of traditional managers (+7.4 percent). In addition, alternative managers have grown revenues by 16.2 percent during that time compared to only 5.5 percent growth for traditional managers.

By valuing the alternative managers by net cash and investments on the balance sheet at a PE multiple of traditional fund managers, Oppenheimer sees significant upside to its top three names.

The firm sees…

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