We recently compiled a list of the 10 Best Asset Management Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Blackstone Inc. (NYSE:BX) stands against the other best asset management stocks to buy according to hedge funds.
It will go down in history as one of the best years for companies engaged in asset management. Their stocks are up by double-digit percentage points in response to one of the best investment environments. Central bank’s push for lower interest rates has bolstered investor sentiments and contributed to the market rally.
In return, asset management companies have enjoyed significant capital inflows and increased fee generation. Similarly, the companies have rewarded investors with buybacks and high dividend yields.
Due to strong market performance and healthier net flows, the value of assets under management (AUM) reached a record $132 trillion as of June 2024. Amid the significant net inflows, a global report by PricewaterhouseCoopers indicates asset management firms that deliver returns on both social and financial fronts stand to be clear winners.
“While financial return will always be important, increasingly investors are deciding that social return is just as important. What we’re seeing is asset and wealth management firms that deliver standout returns on both the social and financial fronts will be the clear winners over the coming decade — magnets for investment and able to sustain superior returns for shareholders and partners.”
The report also indicates that the asset management industry is poised to grow by up to 5.6% per annum to US$147.4 trillion by 2025. The growth is poised to come as the industry undergoes a substantial shift in managing investments. Technological advancements, changing investor preferences, and increased focus on sustainability should significantly impact growth rates.
In response to changing investor preferences, asset managers are increasingly coming up with customized investment products. Asset management product customization also seeks to align with specific financial goals, risk tolerance, and values.
Matt Ford, Co-founder and CEO at Sidekick explains: “We expect the shift to a more client-centric approach in the asset management industry to continue in 2025 and beyond, as high net worth and mass affluent individuals increasingly demand more than off-the-shelf products.”
Advancements in technology are also enabling the customization drive. Asset managers increasingly use artificial intelligence and machine learning to source wider information. In return, they can invest much earlier in successful companies and leave companies or investments facing challenges.
Passive investment products offered by asset management companies are becoming increasingly popular as opposed to active investment products. Their popularity stems from their solid performance as they track market indexes such as the S&P 500, Dow Jones Industrial Average and Nasdaq Composite. Passive Investment products have generated strong returns, given that the market indexes have been trending up. The S&P 500 which most track is already up by 26% in 2024 after gaining 24% in 2023.
Likewise, environmental, social, and governance considerations are gaining prominence in the asset management sector. Consequently, managers are under immense pressure to integrate these factors into their investment processes.
“ESG will increasingly become an important part of the due diligence process, which is where active managers like ourselves can make a difference not only by delivering alpha but also by identifying those companies that are set to contribute the most to a sustainable future,” said Mr. Ford.
Asset management stocks are crucial in the financial sector, earning revenue through advisory and management fees. They offer stability and diversification for investors, despite operating in a highly regulated environment.
Our Methodology
To make our list of best asset management stocks to buy according to hedge funds, we scanned the US markets for the biggest asset managers by market cap. We settled on asset managers with solid underlying fundamentals and tremendous upside potential. Finally, we ranked the stocks in ascending order based on the number of hedge funds that hold stakes in them.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Blackstone Inc. (NYSE:BX)
Number of Hedge Fund Holders as of Q3 2024: 50
Blackstone Inc. (NYSE:BX) is an alternative asset management company specializing in private equity, real estate, hedge fund solutions, and secondary funds. The firm typically invests in early-stage, seed, middle market, mature, late venture and later-stage companies. The stock is up by 45% year-to-date.
The rally comes from investors reacting to the company’s strategic initiative and strong performance across its asset management portfolio. One of the strategic moves includes the $4 billion acquisition of Retail Opportunity Investments. The asset management firm is also in the process of expanding its footprint into Europe as part of a push to attract funds from wealthy clients. The move will also allow it to diversify beyond the traditional institutional investor base and strengthen its revenue base.
Blackstone Inc. (NYSE:BX) delivered solid third-quarter results on October 17, 2024, that showed robust top-line growth. Revenues in the quarter were up 5% year-over-year to $2.43 billion, attributed to $40 billion in capital deployment. The asset management company’s distributable earnings per share were also up by 7% to $1.01 as assets under management hit record highs of $1.11 trillion.
The company prioritizes increasing retail investor engagement and strategic diversification, expecting these efforts to support growth in several verticals. Blackstone Inc. (NYSE:BX) also adapts to changing market conditions as it seizes new opportunities by utilizing substantial scale and effective fee structures.
Ithaka US Growth Strategy stated the following regarding Blackstone Inc. (NYSE:BX) in its Q3 2024 investor letter:
“Blackstone Inc. (NYSE:BX) is one of the world’s leading alternative asset management firms with total assets under management (“AUM”) now in excess of $1 trillion. Over the past few decades Blackstone has evolved into one of the financial service industry’s largest asset gatherers, managing money on behalf of pension funds, insurance companies, and individual investors. The company remains at the forefront of financial innovation, steadily broadening its product offering over time. Today, Blackstone invests clients’ capital across four business segments: (a) Real Estate, (b) Private Equity, (c) Hedge Fund Solutions, and (d) Credit & Insurance. The stock’s relative outperformance in the quarter was mainly due to investor expectations that the private markets are beginning to un-freeze, which should lead to a step up in deal crystallizations (sales) for the company.”
Overall, BX ranks 3rd on our list of best asset management stocks to buy according to hedge funds. While we acknowledge the potential of BX to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.