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Private Equity Firms Get A Post-Election Day Bounce

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Private Equity Firms Get A Post-Election Day Bounce

Many stocks were on the move this past week as markets anticipated a Joe Biden victory for the White House but continued Republican control of the Senate.

In some cases, the narratives behind the moves were obvious. Likely White House support for renewables pushed up green energy bets like Invesco Solar ETF (NYSE: TAN), which gained more than 11% on Wednesday.

But one set of stocks moved in a way that was less intuitive: private equity firms.

What happened: The Blackstone Group (NYSE: BX) finished Wednesday up 5.8%. The Carlyle Group (NASDAQ: CG) rose 7.3% that day, and KKR & Co. (NYSE: KKR) gained 8.2%.

Benzinga reached out to Stephen Biggar, an analyst at Argus Research who covers private equity firms, to ask whether the moves were election-related.

Biggar thinks they are. "I believe the presumed retention of the Senate by Republicans does two things: removes the potential for a big increase in taxes paid by private equity firms, and should Biden win, removes the potential for a very progressive cabinet (such as treasury secretary) scrutinizing the industry," he wrote in an email.

Why it matters: Biggar's theory that the market was concerned about higher taxes and regulations on private equity firms under a "blue wave" scenario has other proponents. 

"There’s a 90% chance that a Democrat-led Senate would bump the duty to 28% from 21% within the first year of a new administration. ... Private equity firms that have converted from publicly traded partnerships to C corporations under the Trump administration -- including Blackstone Group Inc., KKR & Co. and Apollo Global Management Inc. (NYSE: APO) -- would be among those paying the higher rate," wrote Crystal Tse, Nabila Ahmed and Alizabeth Fornier in an October Bloomberg article. 

But now that election results suggest a Biden administration working with a purple Congress, those fears of higher taxes and more scrutiny are abating -- and creating a bull thesis for private equity firms. 

What's next: Many private equity firms traded upward after the morning of Election Day. Blackstone was up 9% for the week, ending Friday at $55.66. KKR went up more than 10% to end Friday at $38.23. The Carlyle Group ended Friday at $27.32 for a gain of 9% on the week. Apollo Global finished the week up almost 11% with shares trading at $41.66 at Friday's close.

 

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