Barclays Slaps An Underweight Rating On Oaktree Capital

Barclays’ Kenneth Hill believes Oaktree Capital Group LLC OAK has less upside in the near term, as compared to its alternative asset manager peers.

Hill downgraded the rating on the company from Equal Weight to Underweight, while lowering the price target from $45 to $38.

Better Opportunities Elsewhere

The analyst explained that the downgrade was not a reflection of the management team or the company’s business but the belief that there were better opportunities elsewhere within the alternative asset manager space, as well as in Barclays’ broader coverage.

“We can admittedly make a more compelling case to own OAK as a defensive name vs. alt peers in a tough market, but we cannot make a more compelling case for OAK to outperform peers across good and mediocre markets over the medium term,” Hill mentioned.

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Challenging Space

The analyst pointed out that from a subsector perspective, the alternative asset manager companies have lower transparency than other subsectors, along with smaller floats on average, and require investors to deal with form K-1 due to the partnership structure.

“On the K-1 tax issues though, we have heard both Presidential candidates discuss the elimination of the “carried-interest tax loophole,” which would leave the companies largely unaffected, but perhaps make the return profile less attractive for investors,” Hill went on to say.

Although these issues are not specific to Oaktree Capital, the analyst believes the “knee-jerk reaction to any change” could impact the stock negatively.

Full ratings data available on Benzinga Pro.