28 January 2014 Brokers. Asset Managers & Exchanges Alternative Asset Manager Initiation Figure 22 shows the Alts have made a little progress on narrowing their PE gap vs. traditional asset managers over the past year (also shown in Figure 20 numerically with the Alts narrowing the discount to traditional managers to 38% currently vs. 47% on average over the last 12 months). Overall, we do not see the Alts closing the P/E gap vs. traditional asset managers - despite their superior historical long-term performance and the solid secular growth case for alternative products. This is due to the more variable and cyclical nature of their business mix on top of a much more difficult to forecast business model. Still, we think there is a good case for the P/E gap to narrow, and this support our generally bullish view on the Alts space. Ii igure 22. Average Forward P/Es (WM) for Alts vs. Asset Managers 20x 18x 16x 14x 12x 8x 1 -"rr Za Za 15 s") t'y OS et (iv (SY (SY S7 OST). •s..(t. b\ 42 42 % % 4 % 4 % 4 % 4% 4 4 4 4 4 4 4 4 ,s4 <,‘\ 44% —Alt's Sotec. Ino”sco Roan sno*D•urscro BM AM's S&P 500 Figure 23 summarizes our valuation and implied total return and forecast distribution yields. Overall, we see a median 21% total return for the group over the next 12 months with our Buy ratings having potential 22-30% total returns and our Hold ratings showing less than 10% ROI potential currently. 'Figure 23: DB Summarized Valuation Metrics for the Alts Ticker Opinion Market Cap (Sbn) 01/26/14 Share Price 01/26/14 Price Target Potential ROI to Target Price Returns OstributIon Yield on 2014E YTD.14 ' 2013 AFO Hold $12.7 $32.20 $31 5.8% 1.9% 82.1% 9.5% BX Buy $35.6 $31.13 $39 30.2% -1.2% 102.1% 63% CG Buy $11A $36.04 $43 24.6% 1.2% 36.8% 62x, KKR Hold 517.6 524.56 $25 7.8% 0.9% 59.8% 65% OAK Buy $8.9 $58.88 S68 21.8% 0.1% 29.3% 64% Median Ms 21.8% 0.9% 59.8%