This alternative asset manager is forecasted to grow at an annual rate of 18.15% over the next five years.
KKR & Co. Inc. (KKR)
From Cabot Dividend Investor
KKR & Co., Formerly Kohlberg Kravis Roberts Co., is a leading global alternative asset manager. The firm manages multiple alternative asset classes including private equity, energy, infrastructure, real estate, credit, as well as hedge funds through strategic partners. It generates revenues from management fees, performance income and investment income with a global reach on five continents.
A booming economy and rising interest rates are a great environment for financial companies. The rest of this year should be very good for the sector. But KKR is also the best player in a massive growth trend in the wealth management industry. Alternative investment is a longer-term trend.
Basically, alternative assets are those that do not fall within the realm of traditional stock and bond market investments. In the world of high finance, these assets include areas such as private equity and hedge funds among other things.
These investments are growing like crazy. Global alternative asset investments have grown from $6.4 trillion in 2012 to about $14 trillion in 2020. It is estimated that alternative assets worldwide will continue to grow to more than $21 trillion by 2025.
There’s a good common-sense reason for the growth. Consider your own investment situation. Bonds are low-paying and treacherous. The only place to fetch a decent return is the stock market. But it’s risky to have a huge portion of your nest egg in the market.
It’s an even bigger problem for high-net-worth individuals, and most especially for institutions like pension and endowment funds with fiduciary responsibility. They need to manage risk and diversify away from the market and get a decent return at the same time. Alternative assets are just what the doctor ordered.
I consider KKR to be the best of its peers in the sector. It has blown away the return of its competitors over the past five years, averaging an annual return of 35.86% over the last five years and 36% over the last three. And there are good reasons to believe the outperformance will continue.
KKR had an all-time record fundraising year in 2020, bringing in $44 billion in assets under management for the year. A record $12.5 billion was deployed, or invested, in the fourth quarter. And the firm still has plenty of dry powder going forward.
KKR also made a huge $4.4 billion investment in Global Atlantic Financial Group (GA), a huge player in the insurance industry. The firm’s growth rates have been even more impressive than KKR’s over the past five years and the acquisition could be a needle-mover going forward.
Despite the recent stellar performance, KKR still sells at a price/earnings ratio of less than 14 times. That’s well below the five-year average and less than half of the current S&P 500 price earnings ratio.
The stock has moved sideways for the last six weeks after a big surge and could be consolidating ahead of another move higher in the weeks ahead.
Tom Hutchinson, Cabot Dividend Investor, cabotwealth.com, 978-745-5532, March 24, 2021