By Bill Alpert

Donald Trump's tariffs took more than 10% off the stock market, but they have knocked some private-market investors by twice that amount.

Since the president's so-called Liberation Day tariff announcement on April 2, the S&P 500 had fallen 11% through Monday. But stock in the private-equity pioneer Apollo Global Management fell 21% to $112.36, while the fast-growing private-credit manager Blue Owl Capital was down 22% to $16.41.

Alternative-asset stocks had been last year's favorites. Why did some investors think tariffs spelled trouble?

"It seems like they've thinking tariffs equals recession, equals widening credit spreads, equals loan losses, equals sell Blue Owl," say Bill Katz, an analyst at TD Cowen who follows the nonbank lender. "It's a knee-jerk reaction."

Private lending is often a part of the buyouts arranged by private-equity firms. So the loss for Blue Owl points to another concern, that a cooling public market will reduce the opportunities for PE firms to cash out of their corporate investments. In turn, says Katz, that might make it harder for the alternative managers to attract investment funds.

Other big alt stocks also staggered. Ares Management and KKR & Co. were both down 19%. The giants Blackstone and Brookfield Asset Management were down 16% and 14% respectively.

"It seems like an overreaction," says the analyst, who believes that nothing has really changed in the alt industry's long-term outlook for growth. He upgraded Blue Owl to a Buy on Jan. 16, when it was going for $22.55 a share. A few days later, it peaked at $26.73.

As the manager of a bunch of private investment funds, Blue Owl gets most of its revenue from fixed fees on those assets. Katz figures its fees can grow 20% annually, through 2029, as Blue Owl oversees a growing pile of private loans, infrastructure investments, and money from individual investors.

Investors may worry about a sour economy's impact on Blue Owl's loans. But Katz says the private lender's loans are well covered by the value of borrowers' businesses, and that Blue Owl will be well-secured if a business can't pay. If he is right, there is plenty of upside from Monday's close of $16.41 to his price target of $28.

As for Blue Owl, the company told Barron's that the stock market's tariff volatility doesn't affect its basic business.

"We believe that Blue Owl is well-positioned in today's market volatility," said a company spokesman. "Unlike our peers, over 90% of our management fees are driven by permanent capital, meaning we keep the assets we already raised, and our revenues are nearly entirely predictable management fees."

"Our strategies are underpinned by a focus on downside protection, capital preservation and income generation," said Blue Owl.

Write to Bill Alpert at william.alpert@barrons.com

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April 08, 2025 09:52 ET (13:52 GMT)

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