Private equity firm KKR’s diversified investment approach drives Morgan Stanley’s bullish growth forecasts through 2027
Key Takeaways
- Morgan Stanley names KKR top pick with $150 price target suggesting 13% upside, replacing CME Group in the brokers, asset managers, and exchanges category
- Capital markets rebound drives outlook with deal values rising 8% quarter-over-quarter and 15% year-over-year in Q1, supporting KKR’s earnings projections of $4.93 EPS in 2025 and $6.42 in 2026
- Performance fees expected to surge from 1.62% of beginning assets under management in 2025 to 2.36% in 2026, with 16% annual growth in fee-related earnings projected through 2027
Introduction
Morgan Stanley has elevated KKR & Co. Inc. to its top pick among brokers, asset managers, and exchanges, signaling renewed confidence in capital markets recovery. The investment bank upgraded KKR from “Hold” to “Buy” while raising its price target from $120 to $150, representing a 13% upside from recent trading levels.
This strategic shift comes as improving macroeconomic conditions and reduced recession risks create favorable conditions for alternative asset managers. KKR’s position as a diversified private equity and credit firm makes it particularly well-suited to capitalize on the anticipated rebound in deal-making activity.
Key Developments
Morgan Stanley analyst Michael J. Cyprys points to several factors driving the upgrade, including tariff de-escalation between the U.S. and China that exceeded expectations. These developments have improved the macroeconomic outlook while reducing inflationary pressures and tail risks that previously weighed on market sentiment.
The firm expects KKR to achieve substantial growth in fee-paying assets under management, with fundraising projected to reach $97.6 billion in 2025 and $107 billion in 2026. This represents a 14% compound annual growth rate during the forecast period.
KKR’s diversification across private credit, infrastructure, insurance, and geographic expansion in Asia-Pacific markets positions the firm to benefit from multiple growth drivers. The company’s exposure to emerging sectors including robotics, space technology, and autonomous defense systems adds another layer of potential upside.
Market Impact
Despite KKR shares declining 9% year-to-date and underperforming both peer alternative asset managers and the S&P 500, Morgan Stanley views this weakness as an attractive entry point. The stock’s recent performance contrasts with the firm’s improving fundamentals and growth prospects.
Deal activity shows early signs of recovery, with M&A values rising 15% year-over-year in the first quarter. The U.S. accounts for 58% of global M&A activity, creating opportunities for firms like KKR that maintain significant dry powder for investments.
According to Investing.com, private equity firms hold record levels of uninvested capital, positioning them to drive significant deal volume as market conditions improve. This dynamic particularly benefits KKR given its scale and diversified investment approach.
Strategic Insights
The upgrade reflects broader optimism about capital markets recovery following a period of subdued deal-making and market volatility. Private equity firms with strong balance sheets and deployment capabilities stand to benefit most from improving conditions.
KKR’s business model diversification provides multiple revenue streams that reduce dependence on any single market segment. The firm’s expansion into private wealth management and retirement markets creates additional growth avenues beyond traditional private equity.
Morgan Stanley’s decision to replace CME Group with KKR as its top pick suggests a shift toward growth-oriented exposure rather than defensive positioning. While CME maintains an “Overweight” rating with a $304 price target, it represents a more defensive asset class compared to KKR’s growth potential.
Expert Opinions and Data
Cyprys emphasizes that improved trade policy transparency and reduced tail risks make current valuation levels attractive for investors. The analyst projects 16% annual growth in fee-related earnings and 19% compound growth in performance fees through 2027.
Morgan Stanley forecasts fee-related earnings margins will improve from 68.7% in 2025 to 70.6% in 2027, reflecting operational leverage as assets under management grow. The firm raised its 2026 earnings per share forecast for KKR by 4.5%, demonstrating increased confidence in execution.
The investment bank values KKR at 23.4 times its 2026 EPS, reflecting a premium for its diversified business model and growth potential. In Morgan Stanley’s bull case scenario, KKR could achieve $9.19 EPS with a corresponding $226 price target, while the bear case suggests $4.00 EPS supporting a $50 target.
Conclusion
Morgan Stanley’s upgrade and top pick designation for KKR reflects confidence in both the firm’s strategic positioning and broader capital markets recovery. The combination of improving macroeconomic conditions, reduced recession risks, and KKR’s diversified business model creates a compelling investment thesis.
The projected 20% compound annual growth rate in earnings from 2024 through 2027 underscores the firm’s ability to capitalize on multiple growth drivers. Current market conditions favor quality alternative asset managers with strong balance sheets and proven deployment capabilities.
