Citadel on Listed PE Bandwagon

Chidem Kurdas

Publicly traded private equity is a growing presence in hedge fund portfolios. Citadel is among the hedge funds that favor PE stocks, widely regarded as cheap in a generally overvalued market.

Citadel did not acquire a large holding of any one PE firm but has bought a number of them, including Blackstone Group, a diversified alternative investment manager with probably the largest market cap on the New York Stock Exchange. While in the past five years Blackstone shares have gained much more than the NYSE as a whole, the stock still does not fully reflect the firm’s spectacular growth in assets and revenue.

Also in the Citadel portfolio are Apollo Investment and Carlyle Group, both big PE managers.

Another stock held by Citadel is Affiliated Managers, which has a long track record as a traded entity, having made its initial public offering in 1997. Affiliated is a sort of holding company of investment managers in various markets and styles, with around $544 billion in combined assets.

Roughly one-third of these managers are in the alternatives sector. Notable among them is AQR Capital, a hedge fund firm that is the vanguard of a trend to launch products for the mass market.

AQR entered the mutual fund industry several years ago and now runs a stable of mutual funds with hedge fund-type strategies. Assets nearly doubled from 2011 through 2013.

All in all, the names in the Citadel portfolio represent a diverse range of underlying markets and investment approaches. For instance, Blackstone is a major real estate and debt manager; so the stock represents many markets and asset classes. Citadel bought Blackstone’s credit fund in addition to the company stock.

Listed private equity and other alternatives may be the best-value asset class around. They’re not a pure play on a particular market, but can be seen as a way to invest in a diversified basket at relatively low cost.

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Tags: Affiliated Managers, Apollo, AQR Capital, Blackstone, Carlyle Group, Private Equity