The Blue Sky Alternative Investments Ltd (ASX: BLA) share price has skyrocketed around 730% over the past five years, yet still commands a relatively small market capitalisation of just $530 million.
For investors unfamiliar with the company, it is a holding company for fund managers that invest in four distinct alternative asset classes: private equity and venture capital, private real estate, hedge funds, and real assets.
Why could this company be a good addition to your portfolio?
Here are four reasons why I think it might be worth owning:
A huge market opportunity:
As the slide below highlights, BlueSky is still a minnow in the alternative assets space.
It currently has fee-earning assets under management (AUM) of less than $3 billion, compared to a global giant like Blackstone which has in excess of US$275 billion. Clearly, there is a growing market for alternative asset investments and BlueSky has a significant opportunity to grow into a much larger business over time.
AUM growing at a rapid pace:
BluSky has done a great job of growing its fee-earning AUM over recent years, but the company is expecting this to almost double in the space of just three financial years. This would provide a tremendous boost to profitability as fund managers are highly leveraged to economies of scale within their businesses.
Impressive investment track record:
As the slide below highlights, BlueSky has delivered investors a return of 16.4% per annum compounding since inception in 2006.
This is an extremely impressive performance especially when you consider the S&P ASX200 Accumulation Index has only returned 5.6% over the same period. Clearly, BlueSky's alternative asset fund managers have the ability to identify high-returning investment opportunities that are not necessarily available from the share market.
Alternative assets can help to protect your portfolio:
Alternative asset classes can provide share market investors with an additional layer of diversification as their returns are not directly correlated to the performance of the share market. This means alternative asset classes can still perform strongly when share markets are falling (and vice versa). Investors are increasingly becoming aware of this benefit and it is one of the main reasons for the surge in alternative asset investments over the past decade.
Are the shares a buy right now?
BlueSky generated earnings per share of 15 cents in the first-half which means the shares are currently trading on an annualised price-to-earnings ratio of around 26.
Although this could hardly be considered a bargain, I think it compares quite favourably to other fund managers such as Magellan Financial Group Ltd (ASX: MFG) and BT Investment Management Ltd (ASX: BTT) which currently trade on around 20x earnings.
While I wouldn't be rushing out to buy BlueSky shares at the moment, I think it will be a strong long-term performer as the company benefits from the increasing popularity of alternative asset investments.
