Blackstone profit trises as market gains lift holdings, fees

, Bloomberg

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Jonathan D. Gray
Jonathan D. Gray

Blackstone Group, the world's largest manager of alternative assets such as private equity and real estate, said fourth-quarter profit rose 43 percent as the carrying value of its holdings gained.

Economic net income, a measure of earnings excluding some costs tied to the firm's 2007 initial public offering, increased to $670 million, or 59 cents a share, from $468 million, or 42 cents, a year earlier, New York-based Blackstone said today in a statement. The results beat analyst expectations of 47 cents a share, according to the average of 15 estimates in a Bloomberg survey.

A 13 percent gain in global stocks last year and a rebounding U.S. real estate market have lifted the value of fund holdings, boosting fees for managing them. Chief executive officer Stephen Schwarzman, who is leading a push among the largest private-equity firms to expand beyond traditional leveraged buyouts, said in an interview this month that the global economy is "starting to turn the corner."

"Global equity markets were mixed, but Blackstone's publicly traded portfolio holdings outperformed," Steven Fu, an analyst at JMP Securities, wrote in a research note before the earnings were released. "Real estate valuations continued to rise" and "performance in the credit makers and hedge fund-of-fund indices were solid."

Shares Rise

Blackstone is seen as a bellwether for the buyout industry given its size and reach across markets. KKR & Co., the firm run by cousins Henry Kravis and George Roberts, and Apollo Global Management, run by Leon Black, are scheduled to report results next week. Both companies are based in New York.

Blackstone's economic net income, or ENI, differs from U.S. generally accepted accounting principles. Under those standards, known as GAAP, Blackstone had net income of $106.4 million, or 19 cents per share, compared with a loss of $22.7 million, or 5 cents, a year earlier.

Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, the sell them and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments.

Credit, Advisory

Worldwide, the value of private-equity deals announced in the fourth quarter rose 0.7 percent to $91.2 billion from a year earlier, according to data compiled by Bloomberg. Deals during the year declined 20 percent to $413 billion, the data show.

Blackstone's assets under management rose to $210 billion, the most among peers, from $205 billion at the end of the third quarter. Committed capital yet to be invested, known as dry powder, was $35 billion. Blackstone said it will pay a dividend of 42 cents per common share on Feb. 19 and intends to increase its base quarterly dividend for 2013 to 12 cents a share from 10 cents.

Blackstone's real estate business, led by Jonathan Gray, closed its seventh fund with $13.3 billion in October and deployed capital throughout the quarter. The fund invested about $85 million into a 4.5 million-square-foot portfolio of Southern California offices, paid $165 million to buy a 25-story office building in downtown San Francisco, and agreed to buy Apple REIT Six Inc., a real estate investment trust focused on hotels, in a $1.2 billion deal.

Blackstone is also seeking to raise more than $2 billion for its first property pool focused on Asia, according to a person with knowledge of the effort. Tony James, Blackstone's president, said in a Dec. 5 conference that Asian real estate assets are "unique products in an asset class that investors increasingly want."

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