Listed Alts: Gains Trump Losses

Chidem Kurdas

Publicly traded alternative investment businesses did much better than traditional money managers last year, according to data from consultant Casey, Quirk & Associates. The alt firms had 35% median revenue growth, compared to 14% for traditional firms.

However, the long-term track record is a bit complicated. On the whole the trend favors alternative managers, but there may be greater risk. In 2009, their median operating margin was negative 20%, while listed traditional managers made money.

2013 was the big turning point for margins as well as revenues. Listed alternatives became highly profitable, with a 41% median operating margin vs. 29% for traditional managers.

Alternatives in the broad sense include private equity, hedge funds, credit and real estate. Blackstone, probably the most successful of the alternatives managers, is in all four of these businesses. Since I reported the advantages of listed private equity in January, this topic has received widespread attention.

Some hedge funds, such as Citadel, hold listed alternative managers.

Investors considering the stocks may find of interest another result from Casey, Quirk, namely that listed North American managers slightly outperformed their European peers. But this analysis is limited by the small sample, comprising 36 North American firms (four from Canada) and 12 European firms—nine from the United Kingdom, two from Switzerland and one from Italy.

One big advantage of buying the public stock of alternative investment companies – compared to investing in their funds – is that the shares can be sold easily. By contrast, hedge and private equity fund investors may or may not be able to sell their interests.

Also, some investors are more comfortable investing in public companies on the ground that these are thoroughly regulated. That may be a misconception—Enron shareholders did not lose any less because it was a regulated public company. For the reality of how investors fare under the regulatory state, read Ponzi Regulation


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