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 shareholders shouldn't sweat the small stuff. The big picture should provide some assurance. 

The New York firm's stock initially fell as much as 2.2 percent following its narrow second-quarter miss on Thursday before paring back losses. In my opinion, that early reaction was overblown: The metric of economic net income that alternative asset managers are held accountable to is unpredictable. While it's a decent indicator, it doesn't necessarily reflect future performance, because it includes valuation changes in the sizable suite of investments that they haven't yet sold. These can change over time; what matters in the end is the valuation at which they're cashed out.

Grinding Higher
Blackstone is trading close to its highest level since September 2015. A second-quarter blip shouldn't derail its overall rebound: analysts expect it to climb to ~$38 in the next 12 months.
Source: Bloomberg

The volatile nature of the metric explains why Wall Street analysts tend to be more forgiving when firms fall short of their ENI forecasts. Take Evercore's Glenn Schorr's hot take on Blackstone's earnings. The title? "Steph Curry Can't Score 30 Every Night." 

That's a fair point and one that will likely garner a grin from Steph's namesake, Blackstone Chairman, CEO and co-founder Stephen Schwarzman -- who as it happens enjoys his basketball analogies, too. Here he is a couple of years ago, using hoops to help describe how Blackstone has no time pressure and can remain a disciplined investor in a period of historically high valuations:

We're like a basketball team without a 24-second clock. We only shoot when we get a truly open shot we're confident will go in the basket.

But back to that analyst's report: Perhaps comparing Blackstone to Steph Curry is selling the firm short. Although Curry lands front-of-mind as one of the sport's most dominant players in recent years, he's only once topped the NBA leaderboard for points per game in a regular season. Blackstone on the other hand, has built out its private equity, real estate and credit businesses at a scale that keeps rivals at bay on a host of metrics, not least market value:

No Contest
Blackstone's market value is roughly equal to its four largest rivals, combined. This gap has risen because it has grown various businesses to a much larger scale than peers.
Source: Bloomberg

The firm's assets under management also have climbed to fresh highs, regardless of the fact that it's regularly handing back billions of dollars to its various fund investors:

Piling Up
Blackstone's growing assets under management bodes well for ongoing fee generation into the foreseeable future
Source: Company filings

Blackstone has easily replenished its war chest by raising billions dedicated to new iterations of existing funds. This trend looks set to continue through its pursuit of new ventures, such as an inaugural Asia-focused buyout fund and its widely-covered infrastructure vehicle (which makes sense in theory but as I've written, may stumble in practice due to political hurdles, among others).

Behemoth
Blackstone's assets under management total more than its two closest-rivals, combined
Source: Company filings
*Data as at Q2, 2017. Other firms are yet to report

Why does this matter? If all goes to plan and the firm's myriad of funds deliver respectable returns, Blackstone's shareholders are poised to share in the spoils through what should be an increase in both management and performance fees over the long term. Nothing in this quarter's results disrupts this notion.

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