Money Managers Finally Ready to Bet on Kravis and Schwarzman?

Here’s an interesting coincidence:

In the 4th quarter of 2007 private equity companies were putting a tremendous amount of cash to work buying assets: $95.3 billion in total sponsor-backed M&A (mergers and acquisitions), according to Thomson Reuters.

It was also the quarter that followed the IPO (initial public offering) of one of the industry’s most legendary firms: Steve Schwarzman’s The Blackstone Group.

Fast forward (past the credit crisis) to the 4th quarter of 2010: private equity companies have put $57.8 Billion to work this time around in sponsor-backed M&A. That’s the busiest Q4 since that 2007 banner year. And it just so happens that this quarter follows the IPO of the industry’s other legendary firm: Henry Kravis’ KKR.

So as M&A fever hits a milestone, it seems private equity senses the moment is ripe for a public debut. Yet Blackstone—which just Tuesday raised $15 Billion in its largest-ever fund— has performed miserably as a public entity: trading at around $14 per share, down more than 50 percent from its IPO price of $31.

So why are some money managers seeing opportunity in private equity stocks this time around?

One word: exits.

Shelley Bergman, lead portfolio manager of the Bergman Group, thinks an improving economy gives PE firms a chance to take profits in—or ‘exit’—their big backlog of assets.

“The world is a better place now. Looking out six to twelve months, you should see some good monetizations. A lot of these firms have dry powder,” Bergman said.

The trend may already underway: PE exits hit $176.5 Billion in 2010, more than double the $63 Billion announced in 2009 according to Dealogic.

In fact Bergman, ranked by Barron’s as one of America's Top 100 Financial Advisors in 2009, told The Strategy Session Tuesday that PE firms might be the best performing financial stocks next year.

“You’re basically aligning yourself with some of the smartest investors on the street and owning the same equity positions that they do,” Bergman said.

Watch CNBC's "The Strategy Session" weekdays at Noon ET.