It didn’t really help that the last few weeks my bedtime reading at night was the “Billion Dollar Whale”, the story of the now-infamous Malaysian Jho Low and the pilfering of the 1MDB Malaysian sovereign debt fund, where Low basically spent $12 billion of the fund’s proceeds on everything from excessive partying, to artwork, to real estate, to yachts, to you name it, some of the debt issuance aided by the most respected of all former white-shoe firms, Goldman Sachs (GS).

Gary Cohn and Lloyd Blankfein aren’t exactly portrayed in a favorable light at the end of the book, particularly after the posturing post-2008, but all that being said, the issue is behind Goldman and it’s not worthy of further discussion.

Goldman reports its Q3 ’20 financial results on Wednesday, October 14th, before the opening bell, with current Street consensus per IBES by Refinitiv, expecting $5.22 in EPS on $9.25 billion in revenue for expected y/y growth of 9% and 11% respectively.

It was a monster second quarter that Goldman reported in mid-July ’20, when the investment banking giant printed $6.26 in earnings per share versus a $3.13 estimate on revenue of $13.3 billion versus the IBES/Refinitiv estimate of $9.76 billion for upside surprises of 100% and 36% respectively.

Goldman’s net revenue grew 41% y/y in Q2 ’20, generating 8% EPS growth, also y/y.

Q2 ’20 results were emblematic of the late 1990s’/early 2000s’ monster quarters the investment banks printed in robust markets.

Fixed-income revenue was 120% higher y/y while equity revenue was 60% higher, with fixed income primarily driven by the explosion in corporate bond issuance after Jay Powell lit the lamp in late March/early April ’20 announcing the various Fed liquidity programs.

Buyback Impact

GS Share Buyback Impact

Source: Internal valuation s/sheet from earnings releases, 10-Qs

When looking at current forward estimates

It’s been nearly four months since I last checked on Ares Management (ARES), and since then, the shares haven’t really budged at all. Since June 8th, the shares have returned about 2%, when dividends are factored in. While this performance may not be inspiring for some, I don’t believe it tells the full story.

As seen below, Ares Management is a relatively low-beta stock, which means that its stock price has swung relatively little compared to the rest of the market. For this reason, I believe Ares is a relatively good place for investors who are seeking a place to park cash, while remaining in equity market. In addition, I see upside potential from where the stock trades today; so let’s get started.

(Source: YCharts)

A Look Into Ares Management

Ares Management is a leading investment manager that has shown resiliency and an ability to thrive during recessions and the current pandemic-induced downturn. It was founded in 1997 that operates in the three segments of Credit, Private Equity, and Real Estate.

Ares currently has $106 billion in total FPAUM (fee-paying AUM), with about 75% of assets in credit-related investments, 16% in private equity assets, and the remaining 9% in Real Estate. It has a stable and high-quality investor base that includes pension funds, insurance companies, banks, sovereign wealth funds, and university endowments.

What I find impressive is that the Ares continued to grow FPAUM both sequentially and YoY, by 3.4% and 18%, respectively, in the latest quarter. This translated into a 26% YoY growth in FRE (fee-related earnings), as many of Ares’ funds are mature, and therefore have lower administrative and setup costs than newer funds. This translates into higher profitability, which is why FRE grew faster than FPAUM.

(Source: Company Earnings Presentation)

Overall, I see Ares as