An improving outlook for deal activity for the rest of the year translated into a more positive tone from the four largest publicly traded private equity firms during second-quarter earnings season.

Each of the alternative asset managers — Apollo Global Management Inc., Blackstone Inc., The Carlyle Group Inc. and KKR & Co. Inc. — posted sentiment scores on their latest round of earnings calls above the average of the previous four quarters, according to an S&P Global Market Intelligence analysis of language used by executives and analysts.

Optimism shone against a backdrop of public market volatility, with weaker-than-expected US economic data prompting a sell-off from major indices on Aug. 5, the same day Carlyle reported quarterly results.

"The trajectory for GDP, the expected Fed rate cuts this year, all the dynamics still tell us the underlying fundamentals support improving activity across our platform for the balance of the year," said Carlyle CEO Harvey Schwartz. Both the Nasdaq and S&P 500 recovered the following week after the release of new data indicating a slowdown in US consumer inflation.

The average net positivity score for the Big Four firms rose to its highest level in at least five quarters, nearly pulling even with the S&P 500 average, which dipped slightly at the midyear point.

PE investment cycle

KKR co-CEO Scott Nuttall was possibly the most bullish of the Big Four executives, trumpeting a rebound in dealmaking as inflation and interest-rate concerns recede. Private equity-backed deal value in the second quarter climbed to its highest level in two years, and mega-deals were on a record pace in the first half of the year.

Apollo's Scott Kleinman, co-president of Apollo Asset Management Inc., sounded a more cautious note, describing a persistent bid-ask spread that is "hampering investment activity for most" and noting that number of private equity entries was at a post-pandemic low in the second quarter, even if the aggregate value of those deals was higher than in recent periods.

– Dig into PE firm CEO pay ratios. – Read about slower coinvestment activity in H1. – Catch up on PE dealmaking in July.

Exits, which were pacing for a five-year low this year after a quiet first half, remain the sticking point in the investment cycle, slowing the return of investment proceeds to investors and crimping firms' ability to raise new capital. Blackstone CEO Stephen Schwarzman said a Fed rate cut could help turn things around, buoying the value of the firm's assets and setting the table for a "significant realization cycle."

Performance metrics

The Big Four alternative asset managers rely on more than private equity strategies to power performance. Apollo, Carlyle and KKR all reported record fee-related earnings in the second quarter.

KKR was the best performer for shareholders, turning in a total return of 32.7% this year through Aug. 7, significantly outpacing the S&P 500's total return of 10.7% over that same period. Apollo also beat the S&P 500, while Blackstone and Carlyle lagged the index. Carlyle was the only firm of the Big Four to show negative total returns over that span.

Blackstone is expected to boost dividends in the third quarter , while the rest of the Big Four are projected to hold their dividends steady through the end of the year, according to Eclipse, a dividend forecasting service.