** Oppenheimer downgrades leading U.S. investment banks, recommends investors redeploy proceeds from sales in the sector into alternative asset managers

** Morgan Stanley MS.N shares fall 1.6% premarket after brokerage cuts stock to underperform from perform

** Oppenheimer also downgrades peer large-cap banks Goldman Sachs GS.N, Citigroup C.N and Bank of America BAC.N

** MS and GS, Wall Street's pure-play investment banks, have gained 19% and 16% YTD, cashing in on a rebound in dealmaking and a wave of mega IPOs; Citi up ~22%, while BofA lags peers with a ~5% gain over the same period

** Shares of both Citi and BAC down 0.6% before the bell

** Oppenheimer raises estimates for 2027 profit on expectations that investment banking wallet will be 20%-25% larger than normal vs its prior view but adds despite this it does not find the valuations compelling

** "We recommend limiting exposure in the large-cap bank group to the most boring and stable commercial banks one can find, which is USB and PNC in our group," Oppenheimer analyst Chris Kotowski writes in a note

** In the alternative asset managers, the brokerage recommends Ares Management ARES.N, Blackstone BX.N and KKR KKR.N

** Shares of alternative asset managers have been pressured this year amid jitters over private credit exposure and concerns about elevated investor redemptions from flagship funds

** ARES down ~33% YTD, BX has lost ~25.5% and KKR has fallen ~30% through previous close