Finance

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Blackstone Group LP has set a high bar for the industry.

The New York financial giant kicked off first-quarter earnings for alternative asset managers on Thursday, earning applause from investors by more than doubling its profit from the same period a year earlier. Most strikingly, it reaped almost $17 billion during the quarter by selling various holdings including a large stake in Hilton Worldwide Holdings Inc., or almost quadruple its average haul over the past 19 quarters. At the same time, Blackstone invested $11.7 billion, with its private equity arm closing deals such as the buyout of Team Health Holdings Inc. and the joint purchase of a package of land in the Eagle Ford shale basin from Anadarko Petroleum Corp.

Put another way, in the past five years, the firm has injected as much or more money into new deals as it has received from selling existing holdings, underscoring a belief that it's not just a seller's market. 

Can You Keep Up?
Blackstone reaped nearly $17 billion by disposing assets, it's biggest quarter ever. It's setting a good example for rivals by simultaneously putting money to work.
Source: Company presentations

Blackstone's level of spending suggests the industry's growing mountain of dry powder can be conquered, as I've written, and indicates that opportunities do exist. That sends a message to rivals who have been complaining about how tough it is to invest, partly because of rich valuations: Try harder. 

Yet Another Record
Despite a supercharged quarter for asset sales, Blackstone's assets under management swelled to a new high
Source: Company presentation

Like Apollo Global Management LLC, Blackstone has sought out ways to avoid paying lofty multiples by betting, for example, that energy prices will eventually rise and by targeting relatively unloved publicly traded companies such as Team Health. At least so far, recent transactions have proved themselves -- Blackstone's 2011 energy fund has unrealized gains of 32 percent while its flagship 2011 private equity fund has unrealized gains of 23 percent. 

Falling Behind
Carlyle has sold nearly $98 billion worth of assets in the past five years while only spending roughly half of that -- $48.8 billion -- on new opportunities
Source: Company filings

Notably, Blackstone shares rallied as much as 3.3 percent on Thursday to $31.05, a level that's still deemed a bargain by its biggest shareholder: Stephen Schwarzman. The billionaire chairman, CEO and co-founder predictably took the chance to deliver yet another math lesson. He's still puzzled about why the stock trades at at such a large discount to the S&P 500 Index, both on a price-to-earnings basis and on a measure of its dividend yield, and cited previously mentioned targets of $50 and $100 for the stock based on these respective measures.

Despite the disconnect, the firm still has no intention of joining its rivals in buying back shares. While that's both somewhat expected and disappointing, investors should take some comfort in the fact that Blackstone would rather channel excess cash into potentially compelling acquisitions or into new funds from which it can earn management and performance fees. After all, that should support the firm's long-term earnings -- and valuation. 

Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net