Skip to main content

NEW YORK (TheStreet) - Lower oil prices are creating investment opportunity in energy for alternative asset managers, according to a recent report from Morgan Stanley (MS) - Get Morgan Stanley Report analysts.

"We are positive on the opportunity set unfolding for the Alternative Asset Managers to deploy capital in the energy sector given recent market dislocations from the decline in oil prices. All of the alt managers appear well positioned to invest opportunistically," the Dec. 22 report said.

The analysts peg KKR (KKR) - Get KKR & Co. Inc. Report as best positioned given its $3.4 billion of energy-related "dry powder," which represents 3.5% of KKR's assets under management, the largest percentage among its peers.  In addition, the firm has $2 billion in cash on its balance sheet "that could be deployed to generate enhanced returns for shareholders," Morgan Stanley said. Morgan Stanley also expects CarlyleGroup (CG) - Get Carlyle Group Inc Report and BlackstoneGroup (BX) - Get Blackstone Inc. Report to raise money to boost their energy-related funds.

Image placeholder title

"Dislocations create 'buy low' opportunities which often lead to higher future returns and robust cash performance fees," the report said.

On the other hand, lower oil prices could present challenges for traditional asset managers.

Fourth quarter revenue and profitability will likely be "negatively impacted from mark-to-market impact of AuM (assets under management) invested in energy (both equity and credit)," the report said. "Furthermore, when we look to the medium- and longer-term, lower or declining oil prices would likely keep AuM and revenues depressed -- likely below current consensus estimates."

Morgan Stanley believes that AllianceBernstein (AB) - Get AllianceBernstein Holding L.P. Report is most impacted, given the firm's "outsized AuM exposure to credit/high yield markets, which have come under pressure during the recent oil price decline."

The research analysts took a deep dive across the firm's entire North America coverage universe to assess how a sustained period of lower oil prices would affect various sectors and stocks.

The Dec. 22 report "highlights stocks for which the effect would be most beneficial, or most challenging," it said. The analysts identified more than 30 industries in which "an extended period of low energy prices would have a material effect," and more than 120 stocks where the effects would be either "especially favorable or unfavorable."

Click through to see which alternative asset managers Morgan Stanley likes best and worst if lower oil prices continue into 2015.

KKR (KKR) - Get KKR & Co. Inc. Report

Impact: Likely beneficiary

Year-to-date return: -3.7%

Morgan Stanley said: Looks best positioned to capitalize on opportunistic investment opportunities that could arise with $3.4b (or 3.5% of AuM) of energy-related dry powder in their funds and $2.1b of cash on their balance sheet that can be deployed quickly; balance sheet exposure to energy stands out at 10%, however, majority of these investments are royalties or interest products which are more defensively positioned against declining oil prices.

Apollo Global Management (APO) - Get Apollo Global Management Inc. Class A Report

TheStreet Recommends

Impact: Likely beneficiary

Year-to-date return: -25%

Morgan Stanley said: Likely will utilize ~$3b of energy related fund dry powder to invest opportunistically; strong credit franchise and distressed capabilities should give flexibility to invest across the capital structure; $5b of energy related capital in the ground suggests potential near term EPS volatility from marks in 4Q.

Oaktree Capital (OAK) - Get Oaktree Capital Group, LLC Class A Report

Impact: Likely beneficiary

Year-to-date return: -13.5%

Morgan Stanley said: Leading distressed debt franchise and value oriented approach positions Oaktree well to deploy $1.6b (1.7% of AUM) of energy related dry powder in potential wave of distressed investment opportunities that could arise.

Blackstone Group (BX) - Get Blackstone Inc. Report

Impact: Likely beneficiary

Year-to-date return: 8%

Morgan Stanley said: Diversified platform and likely lower direct oil exposure vs. peers positions Blackstone for less near-term mark to market volatility vs. peers, in our view. Propitiously timed fundraising of its latest $4.5b energy fund positions Blackstone to capitalize on opportunities in the energy sector. We think the company has largely raised its next $4.5b energy fund (BEP II) and expect a final close in the near term.

Carlyle Group (CG) - Get Carlyle Group Inc Report

Impact: Potentially challenged

Year-to-date return: -23%

Morgan Stanley said: Largest exposure to energy (7.5% of total capital in the ground and ~$3.9b of public energy holdings) across alternative asset managers in our coverage; suggests potential mark-to-market impact and EPS volatility in 4Q, however, the impact to the bottom line could be muted as CG only receives ~15% of the economics on ~$6.9b of energy related capital in the ground from Energy Funds II, III and IV.

AllianceBernstein (AB) - Get AllianceBernstein Holding L.P. Report

Impact: Potentially challenged

Year-to-date return: 22%

Morgan Stanley said: Exposure to high yield markets impacts 4Q via lower AuM from mark-to-market impact. Potential to keep AuM lower if oil prices remain low or move lower.

- Written by Laurie Kulikowski in New York.

Follow @LKulikowski