- Fund values hit by currency, commodities, energy, junk credits
- Firm held off on some stock sales amid volatility, James says
Blackstone Group LP, the world’s largest manager of alternative assets, said first-quarter profit fell 77 percent as rocky markets curbed asset sales and new buyouts.
Economic net income, a measure of earnings that reflects both realized and unrealized investment gains, dropped to $370.7 million, or 31 cents a share, from $1.62 billion, or $1.37, a year earlier, New York-based Blackstone said in a statement Thursday. Analysts had expected ENI of 40 cents a share, according to the average of 17 estimates in a Bloomberg survey.
A year after it notched record results amid buoyant markets, Blackstone, similar to other big private equity firms, rode out a global stock plunge in January and February that hobbled deal making and hurt the value of companies it had taken public and still owned. A market rebound in March allayed some of the damage. The firms mark the value of the investments they hold -- a key determinant of ENI -- in line with the market.
“Currencies, commodities, energy, emerging markets and low-rated credit were all hit, some hard,” Tony James, Blackstone’s president, said on a conference call Thursday with reporters. “This volatility was reflected in the quarter’s carrying value of our assets, despite their solid underlying operating performance.”
Shares of Blackstone fell 4.1 percent to $28.23 at the close of trading in New York. Including reinvested dividends, the stock is down 1.2 percent this year.
The firm, led by Chief Executive Officer Steve Schwarzman, said its private equity portfolio appreciated 1.7 percent in the first quarter, compared with 6.4 percent a year ago. The Standard & Poor’s 500 Index was up 1.3 percent, with dividends reinvested, this year through March.
Blackstone’s opportunistic real estate funds gained 1.8 percent and its core-plus pools appreciated 4.4 percent. The real estate business, led by Jon Gray, surpassed $100 billion in assets for the first time.
Its biggest stake, in hotel chain Hilton Worldwide Holdings Inc., rose by $507 million, or 5.2 percent, despite a 20 percent fall to start the quarter. Other large Blackstone holdings, including retailer Michaels Cos., drug products maker Catalent Inc. and SeaWorld Entertainment Inc., posted gains.
Blackstone pulled off a handful of exits, including selling cleaning services provider GCA Services Group Inc. for $950 million, divesting a minority stake in French real estate company Gecina SA and selling a block of stock in medical equipment maker Zimmer Biomet Holdings Inc.
Its real estate operation struck two massive deals: a $6.5 billion sale of Strategic Hotels & Resorts Inc. to China’s Anbang Insurance Group Co., which is expected to close later this year, and an $8 billion buyout of BioMed Realty Trust Inc., completed in January.
Amid volatility in the stock market, Blackstone decided against selling shares of some companies it owns and has taken public, James said on the call. The Chicago Board Options Exchange Volatility Index reached its quarter high of 28.14 on Feb. 11, above its 17.64 average over the past year.
“We opted to hold back on some of our realizations, which has proven to be a wise decision based on recent market movements,” said James.
Distributable earnings, which reflect cash gains on asset sales, were $388 million, down from $1.24 billion a year earlier. Blackstone said it will pay stockholders a dividend of 28 cents a share on May 9.
With $344 billion in assets, Blackstone is seen as a bellwether for the buyout industry given its size and reach across markets. KKR & Co. and Carlyle Group LP are scheduled to report results next week.
Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.