Credit Suisse Takes Neutral Position On 4 Asset Managers

Credit Suisse on Tuesday changed its ratings to Neutral on four asset managers.

Analysts led by Craig Siegenthaler looked “for asset manager industry fundamentals to improve in 2015 – with profits generally aided from the overall market tailwind (p-fees, mix shift, margin expansion, capital mgmt, investment income), and valuations now cheaper across both the traditional and alternative asset management sub-industries as some investors started factoring in bear market potential (beta risk) in 2014.”

Siegenthaler also looked “for higher interest rates to potentially "shake-up" mutual fund net flow trends – towards higher fee generating equity and alternative products (repeat of taper tantrum in 2013).”

While industry fundamentals may improve, of the four ratings changes, Janus Capital Group (NYSE: JNS) was the only upgrade to Neutral. The rating was based “on new guidance from JNS's CFO on its 3Q14 earnings call” and the firm estimated Janus “could be expecting a $15-25B y/y increase in sales levels in 2015.”

Siegenthaler downgraded Invesco Ltd. (NYSE: IVZ) and noted that the “stock now trades at 14-15x 2015 consensus EPS estimates, and while the IVZ stock could trade at a modest premium if the company can generate 4-6 percent organic growth in '15, we now think additional valuation expansion from current levels is more difficult versus its 10-15 percent discount range in 1Q14.”

Apollo Global Management LLC (NYSE: APO) was also downgraded to Neutral and given its contrarian/value-oriented investment process, Siegenthaler estimated “it will be difficult over the next 12 months for APO's private equity business to deploy its $33B of dry-powder and also rebuild and deploy its $1.5B of carry interest receivables which is down 40 percent from the 1Q13 peak of $2.5B.”

Siegenthaler estimated that the profits of Fortress Investment Group LLC (NYSE: FIG) “are still depressed from the financial crisis. Accordingly, FIG's private equity business produced $275M of performance fees in 2007 (including $190M in 1Q07 alone), but since then has never produced more than $50M of performance fees in a calendar year.” The firm set a $9 price target on FIG.

All of the above stocks were lower Tuesday with Fortress Investment falling the most, recently trading down 4.37 percent at $7.66.