What's News in Earnings: Why Some Money Managers Are Trailing the Market

Summary

WSJ What’s News: Summary of Episode "What's News in Earnings: Why Some Money Managers Are Trailing the Market"

Release Date: August 11, 2025
Host: Miriam Gottfried, The Wall Street Journal

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1. Introduction to Alternative Asset Managers

In this episode of What's News in Earnings, Miriam Gottfried delves into the performance disparities between alternative asset managers—such as Blackstone, Apollo, and KKR—and traditional asset managers like BlackRock and State Street. These alternative managers, often referred to as publicly traded private equity firms, have historically mirrored the fluctuations of public markets but have recently shown a divergence from broader market trends.

2. Performance of Alternative Asset Managers

Miriam begins by highlighting the typical relationship between alternative asset managers and the public markets:

"Shares of publicly traded private equity firms, also known as alternative asset managers, typically rise and fall with public markets, often with slightly bigger swings in both directions."
— [00:33] Miriam Gottfried

However, this year, the stock performances of major firms like Blackstone, Apollo, and KKR have started to decouple from the general market movements, showing a relative lag despite strong quarterly earnings reports.

3. Factors Affecting Stock Performance

To explore why these firms' stocks are underperforming despite optimistic earnings, Gottfried introduces Telus Demos, a columnist and host from Take on the Week. Together, they discuss several key factors influencing this trend:

• Spreads and Lending Margins:
  Telus explains that alternative asset managers are currently experiencing narrower spreads—the difference between the interest earned on loans and the cost of funding those loans. With treasury yields rising, the profitability from lending has diminished.

  "They're not making a ton of money doing that right now relative to where treasury yields are."
  — [02:00] Telus Demos

• Asset Sales Challenges:
  Many of these firms acquired businesses during the post-COVID boom at high valuations. Currently, they face difficulties selling these assets at favorable prices, leading to lower returns to investors and reduced incentive fees.

  "There’s some real concern that they're just not going to be able to sell what they've got now at good prices."
  — [02:50] Telus Demos

• Higher Interest Rates:
  Elevated interest rates increase the cost of capital for these firms, compounding the challenges in raising and deploying funds effectively.

  "Interest rates are a lot higher, which means that they are funding themselves more expensively."
  — [03:22] Telus Demos

These factors collectively dampen investor confidence and limit the upward momentum of these firms' stocks.

4. Case Study: Carlyle Group's Outperformance

Amidst the challenges faced by its peers, Carlyle Group has bucked the trend, with its stock rising year-to-date and improving in the last quarter. Miriam and Telus explore the reasons behind Carlyle’s resilience:

• Valuation Alignment and Management Leadership:
  Carlyle trades at a slightly lower valuation compared to its peers, making it an attractive candidate for investors looking to close the valuation gap. Additionally, under the leadership of Harvey Schwartz, a former Goldman Sachs executive, Carlyle has strengthened investor confidence.

  "Investors are just really kind of buying into the idea that Carlyle Group ... is in the same sort of class as some of these other alternative asset managers."
  — [04:24] Telus Demos

• Operational Excellence:
  Carlyle’s adeptness in private equity and private credit has allowed it to maintain robust operational performance, contributing to its stock’s positive trajectory.

5. Comparison with Traditional Asset Managers

Contrastingly, traditional asset managers like BlackRock and State Street have seen their stocks surge this year, outperforming the broader market despite occasional setbacks, such as BlackRock's stock dip following a significant client withdrawal:

"The S&P 500 is way up. That means that they're managing a bigger pool of money and they collect more fees from that."
— [06:15] Telus Demos

The success of traditional managers is primarily driven by the bullish public equities market, which directly benefits their fee structures due to increased assets under management.

6. Future Catalysts for Alternative Asset Managers

Looking ahead, Telus identifies key catalysts that could help alternative asset managers regain their growth momentum:

• Successful Asset Realizations:
  Continued positive outcomes from the sale of assets would bolster investor confidence and improve financial performance.

• Asset Growth:
  Expanding the assets under management (AUM) is crucial. An increase in AUM leads to higher fee revenues, which are the lifeblood of these firms.

• Expansion into Retirement Accounts:
  A significant potential growth area is the expansion into retirement accounts.

  "This expansion into retirement accounts... could be a huge boon to them."
  — [07:08] Telus Demos

7. Impact of Executive Order on Retirement Accounts

Miriam discusses the recent executive order signed by President Trump, aimed at simplifying the inclusion of private assets like private equity and private credit in 401(k) plans. This legislative change could unlock a massive inflow of retirement funds into private markets, providing a substantial opportunity for alternative asset managers:

"The president's executive order has essentially given them the green light to do so... It could potentially open up this huge market for private markets asset managers."
— [07:47] Miriam Gottfried

While this development is still in its early stages, it represents a promising avenue for growth, potentially reversing the current lag in stock performance for alternative asset managers.

8. Conclusion

The episode underscores the complex dynamics affecting the performance of alternative asset managers in the current economic landscape. While facing challenges from narrower lending margins, higher interest rates, and difficulties in asset sales, firms like Carlyle Group demonstrate that strategic management and valuation alignment can yield positive results. The potential expansion into retirement accounts, facilitated by recent executive actions, may serve as a pivotal catalyst for these firms to regain their growth trajectory and close the performance gap with traditional asset managers.

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Produced by Zoe Culkin and Michael Lavalle, with supervising producer Michael Cosmides. Miriam Gottfried wraps up the discussion, encouraging listeners to stay tuned for the PM edition of What's News.

Transcript

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[Miriam Gottfried]

Hey listeners, it's Monday, August 11. I'm Miriam Gottfried for the Wall Street Journal and this is what's News in Earnings, our look at the broad themes that stood out in the latest earnings season. So shares of publicly traded private equity firms, also known as alternative asset managers, typically rise and fall with public markets, often with slightly bigger swings in both directions. That's because their earnings are tied to the valuations of they own in their portfolios, and those tend to track comparable public companies. But they also usually carry a significant amount of debt, which means that the ups and downs can be magnified. Ever since the start of this year, though, the stock performance of firms like Blackstone, Apollo and KKR seems to have come a little bit uncoupled from the performance of the broader markets. And President Trump's tariffs are only part of the story. Now, the performance of these companies matters because they're the biggest fee payers to Wall street banks, and their earnings can also be a window into the health of the capital markets more broadly, especially the IPO market. Heard on the street columnist and Take on the Week host Telus Demos is here to take a look at the second quarter results for these asset managers and see if we can unpack what is going on. Hi Telus.

[Telus Demos]

Hi.

[Miriam Gottfried]

So Telus, if there's one thing I can always say about the CEOs of publicly traded private equity firms after years of covering them, it's that they're perennial optimists. And this quarter was no different. Blackstone called it, quote, one of the best quarters in our history and Apollo talked up its record origination. But if things are going so well, why are these firms stocks all down year to date?

[Telus Demos]

There are a couple of things that are bothering the market about alternative asset managers right now, why they haven't joined in the big market rally. One is a focus on what in the business they call spreads. That basically means how much money they make lending out to companies. They're not making a ton of money doing that right now relative to where treasury yields are. And so it's just not a great time for them to be lending money. The other thing is that they've got all these businesses that they bought back in the post Covid boom. And a lot of cases they paid a lot of money for those things and now they've really got to be selling them. And the longer it takes and the worse sort of prices that they might get now for those companies relative to what they paid for them a few years ago really just means that they're not going to be returning as much to their investors. They're not going to be raising as much money from those investors. They don't get the same incentive fees like for the firms themselves that they might have. There's some real concern that they're just not going to be able to sell what they've got now at good prices. And that's really dragging on the market's forward expectations for a lot of these firms.

[Miriam Gottfried]

And interest rates are a lot higher, right?

[Telus Demos]

Yeah, interest rates are a lot higher, which means that they are funding themselves more expensively. So the same squeeze that's felt by banks, private asset managers are not banks, but they have to get money in from investors and they have to deploy it in the market. And so private equity firms need to sell the companies they buy either to other companies, to other private equity firms or to the public through IPOs. And while those markets people were expecting them to be really gonzo this year after Trump's election, because, you know, deregulatory fervor, things like that, people thought maybe interest rates would go down. They haven't yet. Much to the President's consternation, of course. But those things mean that it's not necessarily like a bountiful market for private equity firms being able to sell their investments to others and sort of lock in the gains that they have on paper.

[Miriam Gottfried]

But one exception within the world of these so called alternative asset managers has been Carlyle. Its stock is actually up year to date and it actually rose in the last quarter after the last quarterly report. So how has it been able to buck the trend?

[Telus Demos]

I think that people feel like Carlyle Group has the same ingredients that all the other major asset managers do, right? They're good at private equity. That is like the buying and selling of companies. They've got many irons in the fire in the world of private credit. And so I think the question was, could Carlisle just enter the same kind of rarefied air in terms of like the stock valuation that some of the other firms like Blackstone and Apollo and KKR have been in and Carlyle's had new management. They've got Harvey Schwartz, a former Goldman Sachs top executive who's been leading the firm for the last couple of years. And I think investors are just really kind of buying into the idea that yeah, Carlyle Group, you know, is in the same sort of class as some of these other alternative asset managers. And so what I think investors are looking for is really a catch up of that stock's valuation versus some of the other managers. So Carlyle was just trading at a slightly lower valuation to some of its peers. And I think investors have been waiting to say okay, should that gap close. And I think that's what we're starting to see this year. So you know, often in a bull market you have to look for company that maybe is a little, not quite as shiny as others, but seeing if it could get there. And I think that's what's happening with Carlyle right now.

[Miriam Gottfried]

So I also want to talk a little bit about traditional asset managers. We've been spending a lot of time with alternative asset managers, which are the thing that I focus on most of the time. These traditional asset managers, particularly firms like BlackRock and State street, are doing pretty well this year from a stock perspective. Both are beating the market. And that's despite one off events like a Single Asian client pulling 52 billion from BlackRock in the second quarter, which actually did cause its stock to fall. But why are these stocks surging overall year to date while shares of the private equity firms, the alternative asset managers, are lagging?

[Telus Demos]

The simple answer to that is that because they are managers of public equity money, much more so than the alternative asset managers. And public equities have gone up, right? The S P 500 is way up. That means that they're managing a bigger pool of money and they collect more fees from that. So the bull public market is really good for these guys. Whereas it's not as directly impactful for the alternative asset managers except insofar as they can then maybe take some of their companies public and realize them. And as discussed realizations, selling is going to okay to not great for a lot of alternative asset managers. So that's the simplest reason why you see a big difference.

[Miriam Gottfried]

What could a catalyst be for people to regain faith in the growth story for alternative asset managers? Do you think it's just an interest rate cut?

[Telus Demos]

I think a couple key things will be one that realization selling, just continuing to see those results go well. And then the other is can they continue to grow their businesses, meaning can they manage more assets? Can they get more money from people? Because really, the lifeblood of these companies is fees. And so the big thing will be something Miriam, I know you're following pretty closely, which is this expansion into retirement accounts. So the president's executive order has essentially given them the green light to do so. Will it happen? Will they start managing billions, tens of billions, hundreds of billions, trillions of dollars worth of our retirement money?

[Miriam Gottfried]

As you said, the president last Thursday signed an executive order that was aimed at making it easier for employers to include private assets like private equity and private credit in 401k plans. And that could potentially open up this huge market for private markets asset managers for the Blackstones, Carlyle's and Apollos of the world if we start to see inflows from 401ks, and that could be a huge boon to them. It's still a bit theoretical right now, but we're definitely on that path and that's something to be looking out for. Okay. Thank you, Telus. That was a very interesting discussion.

[Telus Demos]

Thanks. Thanks for having me.

[Miriam Gottfried]

That was what's News in Earnings. Today's show was produced by Zoe Culkin and Michael Lavalle with supervising producer Michael Cosmides. Later today, we'll have the PM edition of what's News out for you as usual. I'm Miriam Gottfried. Have a great day.