Feb. 27 (Bloomberg) -- Blackstone Group LP, the world’s biggest private-equity firm, had a fourth-quarter loss of $827.1 million as it marked down the value of private-equity and real estate holdings.

The loss, excluding costs tied to its 2007 initial public offering, was 68 cents a share, compared with a profit of $88 million, or 8 cents, a year earlier, the New York-based firm said in a statement today. That missed estimates of a 40-cent loss, the average of seven analysts in a Bloomberg survey.

Blackstone, run by Stephen Schwarzman, posted its third loss in four quarters amid a leveraged-buyout drought and global recession that’s slashed the firm’s fees and hampered it from selling what it already owns. The firm wrote down the value of its private-equity holdings by 20 percent and real estate assets by 30 percent to match a global decline in prices. The Standard & Poor’s 500 Index dropped 23 percent during the fourth quarter.

“They’re managing their current book instead of actively investing, at least at this point,” said Daniel Fannon, an analyst with Jefferies & Co. in San Francisco who rates Blackstone shares “hold” and doesn’t own them. “When they start investing again is difficult to predict, given the economic backdrop.”

Blackstone has declined 88 percent since its initial public offering at $31 a share in June 2007. The stock rose 40 cents, or 10 percent, to $4.27 at 11:44 a.m. in New York Stock Exchange composite trading.

“We are in the middle of a serious economic crisis,” Blackstone President Tony James said on a conference call today with reporters. “We are clearly affected by these broad forces.”

Distribution

The firm said today it wouldn’t pay a distribution to its shareholders for the fourth quarter after paying a total of 90 cents a share during the first three. Blackstone may not be able to pay the planned $1.20-a-share in distributions this year either, according to the statement.

James said the firm was adjusting how it managed its cash in order to pay the full distribution in 2009.

Schwarzman didn’t receive a bonus for 2008, and cash compensation for other top executives fell 70 percent, according to the statement.

The loss at Blackstone’s private-equity group widened to $239.1 million from $37 million a year earlier. The real estate division had a loss of $478 million versus a profit of $20.5 million in last year’s fourth quarter.

‘Ugly’

“It’s all ugly,” Robert Lee, an analyst with Keefe Bruyette & Woods Inc. in New York, said before the results were released. “I’m not sure this quarter is going to be the end of the pain.”

Schwarzman has pushed the firm he founded with Peter G. Peterson in 1987 deeper into hedge funds and merger advice to offset the decline in private-equity deals. A former investment banker at Lehman Brothers Holdings Inc., Schwarzman has seen profits of late only from Blackstone’s unit that advises companies on mergers and restructuring.

The financial advisory group earned a profit of $22.5 million in the fourth quarter, down 35 percent from the previous year.

Blackstone’s advisory business, led by John Studzinski, is engaged on assignments including helping American International Group Inc. dispose of some assets after its seizure by the U.S. government.

“The company’s diverse business model shields it from some of the current economic malaise,” Fannon, of Jefferies, wrote in note to clients yesterday. Fannon lowered his fourth-quarter and 2009 earnings estimates yesterday. He had expected a 50-cent loss.

Writedowns

Fannon’s reduced estimates were tied in part to the reduction in value of Blackstone’s holdings. The firm announced $169 billion worth of buyouts in 2006 and 2007, according to data compiled by Bloomberg.

Now, the company is left to manage companies including Hilton Hotels Corp. and Freescale Semiconductor Inc. through a troubled global economy.

Blackstone is pursuing few new deals. Since the beginning of 2008, it’s completed $9.2 billion in transactions. Banks, coping with losses of about $1 trillion since the onset of the credit crunch in 2007, aren’t committing new debt, the lifeblood of LBOs. Private-equity deals dropped more than 60 percent to $211 billion last year, according to data compiled by Bloomberg.

Much of the Blackstone’s recent investing has been made through its GSO Capital Partners LP business, which buys distressed debt. The company also created a new group to pursue infrastructure investments and is seeking about $2 billion for a fund for those types of investments.

The firm is using those efforts to compensate for an economic environment that caught the firm off guard.

“We were wrong in terms of the magnitude of what we expected,” James said. “I think it’s a depression, not as bad as the Great Depression, but worse than any depression since then. Our downside planning wasn’t good enough.”

To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net.

Last Updated: February 27, 2009 11:44 EST