Alternative investment managers are on fire this year - and they could just be getting started

Equity markets have been red hot, but one area of Wall Street has been even hotter.

Shares of alternative investment managers - those who deal with assets outside of traditional equities, like real estate, hedge funds, and commodities - are up roughly 40% so far this year, over double the S&P 500's benchmark 13% return in the same period, according to data from Goldman Sachs.

"Our bottom-up free cash flow analysis shows the stocks' earnings power is ~30% greater today than it was in 2014/15 (prior share peaks), while the downside risks have been significantly reduced," analyst Alexander Blostein said in a note Monday. "With macro conditions still benign, we see more room to run and raise our coverage view to Attractive with an average total return of 18%."

KKR will join Blackstone Group, a $371 billion firm led by CEO and former Trump advisor Stephen Schwarzman, and Apollo Global Management, which manages $148.5 billion, on Goldman's list of alternative managers that could outperform in the near future thanks to higher fee-related earnings, healthier balance sheets, and many fewer downside risks.

Apollo in July raised the largest ever private equity fund, amassing $24.6 billion to be invested in North America and Western Europe, according to Reuters.

Blackstone has also made headlines recently for launching a $40 billion infrastructure fund with the help of Saudi Arabia's Public Investment Fund.

"We believe downside risks to stocks today are nearly ~3X lower than they were vs. last time these stocks peaked, largely due to earnings mix changes," Blostein said. "Given this dynamic, we shift our coverage view on Alternative Managers to Attractive from Neutral."

Specifically, Goldman raised its target price for shares of KKR, a $148.5 billion fund manager, to $23 - 13% above were the stock was trading Monday morning.

KKR is up 48.42% so far over the past year, while Blackstone and Apollo are up 40.27% and 79.53%, respectively.