- Private credit has gone from hot trade on Wall Street to a key concern for investors.
- Some commentators have compared recent headlines to the run-up to the 2008 crisis.
- BofA says fears are overblown, and have created a buying opportunity in some stocks.
Private credit has captured investors' attention for the wrong reasons lately.
However, Bank of America says not only are worries misplaced, but that the recent "media obsession" with the private credit space has created an opportunity to buy the dip for some of its top stock picks in the space.
Investing heavyweight like Mohamed El-Erian, George Noble, and Jamie Dimon have sounded off on the space recently, while markets have also fretted over private credit's ties to AI data centes and the software industry. Bank of America has hit back at some of the more dire headlines, telling clients in a report last month that the negative sentiment around private credit is driven by "misinformation."
The analysts this week took that a step further, saying that recent negative media attention has created a buying opportunity in some alternative asset manager stocks.
"The media has focused on low value data points which have driven a dislocation in the Alt stocks in parallel with increasing redemptions in a small part of their business," they wrote. This is not a Great Financial Crisis repeat, Bank of America assured clients in a Wednesday note.
Here are four buy-rated alternative investment management stocks that the analysts say are trading at a discount.
Ares Management
Illustration by Thomas Fuller/SOPA Images/LightRocket via Getty Images
Ticker: ARES
12 month stock performance: -27%
What Bank of America says: "ARES is the best way to play a "return to fundamentals." Ares is a world class Alt manager with a global, diversified private markets business including its best-in-class non-[investment grade] IG private credit franchise."
The analysts flagged that Ares' flagship Business Development Company has returned 12% annually since its 2005 inception, outpacing its competitors.
KKR & Co
Brendan McDermid/Reuters
Ticker: KKR
12 month stock performance: -22%
What Bank of America says: KKR & Co is another buy rated alternative asset manager Bank of America flagged.
The analysts highlighted that KKR's exposure to software, a major concern for investors, is only 7%. It is also less exposed than some of its peers to retail investors.
They also noted that KKR's long-term earnings estimates have held steady, while its price fell in the same period.
Blue Owl Capital
Brendan McDermid/Reuters
Ticker: OWL
12 month stock performance: -53%
What Bank of America says: Blue Owl stock has dramatically sold off based on bad information about the state of the private credit space, which has created an attractive entry point for investors, in Bank of America said.
"OWL's investment performance is solid to strong across all of its strategies; Credit quality in credit remains above average," the analysts wrote.
Blackstone
Sign outside the Blackstone headquarters.
Erik McGregor/LightRocket via Getty Images
Ticker: BX
12 month stock performance: -22%
What Bank of America says: The analysts noted that Blackstone's returns and credit quality remain solid, and that they expect redemptions to improve in the second half of the year.
Bank of America compared the recent media frenzy about the private credit space to the 2022 Blackstone stock sell-off that was fueled by redemptions spiking in one of its real estate funds. In the following 12 months the stock nearly doubled from its low.
Blackstone recently announced that redemption requests had surpassed the threshold where the fund could limit withdrawals, but the firm opted not to limit redemptions. Bank of America explained they do expect this to change to avoid becoming the "ATM" for private BDCs.
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