KKR & Co. LP (KKR)

Has been a strong performer. The story hasn't changed for a number of years. When credit spreads blew out in the 1st part of 2016, this company did a good job of clawing its way back. A lot of good things are happening in the company. They still have the ability to raise a lot of capital. Assets under management year-over-year has very strong growth. Performance has been very good, which leads to performance fees they've been collecting. This is a core holding in her portfolio.

You have to think that although interest rates are rising, private equity guys should be looking at shops such as energy, retail, grocery food stores, etc. There is value out there, and there is cheap capital to be put to work. When you invest in this company, you are making a bet that management can find some very strong returns to invest in. He likes this as a very diversified financial.

This is cheap. However, the issue is, is it going to get any more expensive. The balance sheet really hasn’t gone anywhere. In particular the earnings aren’t going anywhere. They haven’t done anything spectacular recently to capture people’s imaginations.

This is in the private equity space, and he would prefer public equities today, where you pay a lower price. However, this company will do just fine.

This is run by brilliant men who have had a great track record of acquisitions. The stock continues to drift upwards and will probably continue to do so over the years. You are not buying a business, you are actually buying the leadership and the trust in the leadership. You will probably be fine with this over the long-term.

Has owned this for a number of years. There has been concern as to how much leverage there is when taking over companies, and what happens when interest rates increase. That may put some pressure on some players. Coming out of the downturn, there were a lot of private equity players, and not all of them did well. There is a big difference in returns between top players and the others, so there has been a lot of asset flows coming into the top players. It seems that it helps not having to use as much leverage when you are taking over companies. So far, she hasn’t seen any impact on the valuations.

KKR & Co (KKR-N) or Blackstone (BX-N)? He prefers an asset manager that is focused on public market equities. Asset classes are always being revalued. At certain times, certain asset classes do better than others. We have just gone through 10 years where regulation, compliance and rules around being a public company went through the roof, and it became very, very expensive. During that time, managing investing in private companies became very attractive, as they didn’t have the same problems. However, many private companies trade at higher valuations than public market companies, and yet public market companies are liquid every day and can be bought or sold. We have entered a period of many years where public market equities and developed markets, are likely to outperform. Asset managers in that area are under-owned and under-loved, and things are changing for the better. Multiples are expanding. Prefers Morgan Stanley (MS-N).

Primarily private equity, in the alternative finance category. They’ve had some very strong realizations, which were up about $8.6 billion last quarter, up 28% from the previous quarter. Better equity market equals more realizations. Very, very cheap, cheapest of the alternative group. They have really underperformed, unlike the overall finance group, partly because of their partnership structure, so maybe at some point it could convert to a C Corp. Basically trading at BV or slightly below. Dividend yield of 3.65%. (Analysts’ price target is $19.95.)

As a private equity conglomerate with hedge funds, etc., there is a lot of leverage in this business. If borrowing rates go up, that could impact profitability. Also, volatility may not help their business. Trading at a very reasonable valuation and offers a good payout. This is sensitive to interest rates.

Mid-last year she had concerns on the credit side and their access to capital. They are doing a great job. The management team is frustrated with the share price. If we are at the beginning of a significant rise in rates, you still get a higher yield owning equities right now, so she thinks they have the ability to do well. They are in great shape and one of the cheapest stocks in the financial sector.

Good company. He would think anything in private equity or capital markets for the next couple of years are going to be very fruitful. He likes this here.

This has a 6% dividend yield because it is trading at the lower end of its range. She likes the company and the management, but they are in the business of making private equity investments, which are based on people giving KKR money to invest. KKR takes the money and borrows against it, and then makes the investment. They are very, very heavily laden with debt. It can be a very dangerous environment when rates start to rise. It could also be very difficult to raise money if we go into a period of somewhat muted growth. Private equity funds have had their golden moment. They have been able to make acquisitions at practically no cost because it is so cheap for them to borrow. If you buy this for the long run and just want to hold it, why not.

Likes what management did in their last quarter call. They listed the pushbacks and addressed every one of them. She looks at this from a longer-term perspective, which is exactly when they are creating value. There is still a lot of demand for private equity, so they are seeing tremendous fund flows. They have a steady stream of earnings from management fees. Thinks there is quite a bit of upside to this. Dividend yield of 4.3%. (See Top Picks.)

This would be an unbelievable value stock. Unfortunately, it suffers from some of the problems we have, but worse, with financials, i.e. if we are in this trading range for the market, how do they harvest and bring out their best ideas as a private equity firm. The exit strategy is to IPO these into the market. Inexpensive, so it certainly ticks the value button, but he doesn’t see a catalyst for the upside. If there was a rally in the market that was sustainable, then he would be all over this, but more short term oriented. There is no assurance on the yield.

A big factor for them is how private equity is doing as a group. Valuations in private equity investments have gone up a lot over the last number of years. A lot of money left the publicly traded stock market to invest in private companies that were subject to day-to-day movements. Because that asset class did so well, the multiples of earnings that investors were paying expanded and expanded. He would liken the private equity world to what happened in the late 90s in the public market. The multiples are really, really high, so it is hard for them to get their exits by taking these companies public. He is less interested in private equity, and this is the time to be focused on public market equities, which have been out of favour for 12-14 years. Thinks it is likely that money is going to slowly rotate back to public market equities over the next number of years.