Blackstone Group LP, 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. The results beat the 47-cents average estimate of 15 analysts, sending the shares higher by the most in more than a year.
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.”
“The pace of realizations picked up appreciably during the fourth quarter, which drove better-than-expected results,” said Steven Fu, a San Francisco-based analyst at JMP Securities LLC. “In addition, the fundraising machine continues to deliver with solid gross inflows across all segments.”
Blackstone rose 6.1 percent to close at $18.50 in New York, its biggest one-day advance since November 2011. Earlier in the day, the stock surged 8.7 percent. The shares have gained 19 percent this year.
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 LLC, 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, then 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.
Blackstone’s assets under management rose to a record $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.
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.
Schwarzman, on a conference call today with investors and analysts, said he expects deal volume to increase this year by 10 percent to 20 percent even as fiscal uncertainty caused by the “dysfunctional political system” persists.
Blackstone said the value of its private-equity holdings and of its real estate portfolio gained 14 percent in 2012. The real estate business is the largest at the company by assets and contributed 36 percent of economic income, or $246 million. Private equity added 29 percent, or $198 million.
Blackstone plans to sell properties that it has held since 2007, and this year “will be bigger than 2012” for such realizations, Tony James, Blackstone’s president, said today on the conference call.
“Real estate is where I think you’ll see the big activity in terms of dollar scale,” said James. “Commercial real estate results are much stronger than the economy, so we’re seeing stronger operating results in real estate than we are in our companies.”
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.
The company is seeking to raise more than $2 billion for its first property pool focused on Asia, according to a person with knowledge of the effort. James said at a Dec. 5 conference that Asian real estate assets are “unique products in an asset class that investors increasingly want.”
Blackstone said it invested $15.6 billion in 2012, the second-highest yearly amount since the firm was founded by Schwarzman and Peter G. Peterson in 1985. The company distributed $18.5 billion to investors during the year.
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.