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Morgan Stanley | RESEARCH Valuation and Risks NORTH AMERICA INSIGHT ~~ Alternative Asset Managers: We value the stocks using a sum of the parts valuation and discounted cash flow as well as price/earnings and price/cash earnings multiples. Our DCF (COE of 12+15%, free cash flow = distributable earnings and terminal growth rate = 4%) captures the long-term value of the business model, while the sum of the parts captures some of the shorter-term volatility. For our SOTP, we use 2019 *Core® FRE and apply a 18x-21x multiple; apply 12x multiple on BDC income share; use NPV to estimate future carry and apply discount rate to represent volatile nature of carry; 10% haircut on accrued carry; 10% haircut on B/S assets. APO.N Apollo Global Management: We value APO using a sum-of-the- parts, supported by a DCF, and back into an implied target multiple on next 3 years DE, and ENI. Our price target implies a 11.5x multiple on 2019 EPS, reflecting a 25% premium to historical valuation of 9.2x that's warranted due accelerating growth in and mix shift toward sticky fee related earnings for which investors ascribe a higher mul- tiple, and APO is entering their harvesting stage that will see port- folio monetizations accelerate driving stronger cash earnings generation. Upside risks: Better FPAUM growth, capital deployment accelerates, better returns. Downside risks: Declining valuations reduce cash earnings (fewer exits or lower multiples); slower deploy- ment; Funds V, Vland VIl and ANRP remain in escrow, pressuring near term cash earnings. ARES.N Ares: We value ARES using a sum-of-the-parts, supported by a DCF, and back into an implied target multiple on next 3 years DE, and ENI. Our PT represents a 10.8x PE multiple, slightly above the 3 year average of 9.3x on improving cash earnings trajectory. Upside risk includes better asset gathering, stronger investment performance and faster monetization of portfolio investments. Downside risk that strong AUM baked into our model over the next several years will not materialize. ARCC concentration risk (a BDC which contributes 40% of mgmt fees / 29% of revenue), and harvesting delays if there's an extended financial & capital markets pullback. BX.N Blackstone: We value BX using a sum-of-the-parts, supported by a DCF, and back into an implied target multiple on next 3 years DE and ENI. Our PT represents a 12.6x PE multiple, above the 3 year average of 9.4x on expectations for accelerated growth in fee-related earn- ings growth, cash earnings growth and fundraising. Upside risks: Stronger investment performance, faster monetization of portfolio companies, better asset growth through new initiatives. Downside risks: Weakness in public markets and commercial real estate mar- kets pressure investment performance. Harvesting delaysD An extended pull-back in financial and capital markets that delays har- vesting of investments and dampens returns which lower cash earn- ings. cG.O Carlyle: We value CG using a blended sum-of-the-parts, supported by a DCF, and back into an implied target multiple on next 3 years DE and ENI. Our PT implies a 13.5x multiple on 2019 EPS, reflecting a55% premium to historical valuation of 8.8x given resolution of legacy issues and accelerating fee related earnings and asset gathering momentum that will support the multiple. We expect less volatile financial performance across all segments in our forward Look, vs. greater volatility in historicals driven legacy challenges. Upside risks include: Better investment performance, strong asset gathering and faster monetization of portfolio companies. Downside risks include an extended pull-back in financial and capital mkts that delays har- vesting of investments and dampens returns which lower cash earn- ings, and poor investment performance. KKR.N KKR: We value KKR using a 1.3x multiple on 2019 estimated book value and back into an implied target multiple on next 3 years DE and ENI. Our price target is also supported by a sum-of-the-parts valua- tion. Our PT implies a 8.2x multiple on 2019 EPS, reflecting a 9% pre- mium to historical valuation of 7.5x given improving fee related earnings trajectory. Upside risks include better investment perform- ance, compounding book value growth and faster asset gathering from newer initiatives. Downside risks include an extended pull-back in financial and capital markets that delays harvesting of investments and dampens returns which lower cash earnings and impairs signifi- cant investments held on balance. HOUSE_OVERSIGHT_025581