House Oversight — Estate records
HOUSE_OVERSIGHT_025551
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MM January 30, 2018 05:01 AM GMT Alternative Asset Managers Can Alts Unlock Value with C-Corp Conversions? We think APO could unlock the most value by converting to a C-corp with 26% in our upside case vs. -14% in our downside case. ARES could be the first to convert, but this is largely priced in. These firms have more sticky management fee-related earnings vs. BX/CG/KKR that may see less benefit. Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. MM Contributors MORGAN STANLEY & CO. LLC Michael J. Cyprys, CFA, CPA Equity Analyst +1212 761-7619 Michael.Cyprys@morganstanley.com MORGAN STANLEY & CO. LLC Alex D Combs, CFA Research Associate +1212 296-5221 Alex.Combs@morganstanley.com M M Contents 5 Executive Summary 6 C-corp Conversion Could Be the Catalyst to Unlock Value and Drive Multiple Expansion 8 Impact to Current Valuations in Upside and Downside Case 10 ARES Conversion Largely Priced In 11 Why Should Fee-Related Earnings Re-Rate Higher? 11 1) Premium to Traditionals Asset Managers 13 2) Publicly Traded Alts Comps 13 3) Bond Yield Approach 14 What Is the Impact of Higher FRE Multiples in a SOTP approach? 16 What Is the Appropriate Multiple for Performance Fees? 22 Apollo Global Management SOTP and Sensitivity Analysis 23 Ares Management SOTP and Sensitivity Analysis 24 Blackstone SOTP and Sensitivity Analysis 25 The Carlyle Group Management SOTP and Sensitivity Analysis 26 KKR & Co. SOTP and Sensitivity Analysis 27 Oaktree Capital Group SOTP and Sensitivity Analysis 28 Appendix B: Valuation of Alternative Managers - What's in the Price? […]