Blackstone First-Quarter Profit Rises 30% on Higher Fees

Blackstone Group LP, the world’s biggest manager of alternative assets such as private equity and real estate, said first-quarter profit rose 30 percent as the carrying value of its holdings increased and it collected more fees.

Economic net income, a measure of earnings excluding some costs tied to the firm’s 2007 initial public offering, increased to $813.9 million, or 70 cents a share, from $628.3 million, or 55 cents, a year earlier, New York-based Blackstone said today in a statement. The results beat the 55-cents average estimate of 14 analysts in a Bloomberg survey.

Blackstone has been the most active alternative-asset manager so far this year, committing or deploying $7.4 billion of equity to transactions, including about $2 billion to the takeover of industrial-products maker Gates Global Inc.

Led by billionaire Chief Executive Officer Stephen Schwarzman, Blackstone has been the most successful of the large firms to expand beyond traditional leveraged buyouts, which can produce lumpy earnings, and into real estate, credit and hedge funds. Increases in the value of its funds drove a 29 percent gain in performance fees to $779 million in the quarter.

“The beat was driven by a combination of both realized and unrealized performance fee strength across platforms,” said Daniel Fannon, a San Francisco-based analyst at Jefferies Group LLC, who rates the stock “buy.” Blackstone will continue to grow its asset base with “consistently strong performance across all segments,” Fannon said.

Record Assets

Blackstone rose 1.3 percent to $31.34 at the close of trading in New York, paring its loss to 0.5 percent this year. The stock more than doubled in 2013 as the firm prepared holdings such as Hilton Worldwide Holdings Inc. and SeaWorld Entertainment Inc. for profitable exits.

Blackstone, whose assets rose to an industry-record $272 billion as of March 31, is seen as a bellwether for publicly traded buyout firms given its size and reach across markets. KKR & Co., the New York-based company run by cousins Henry Kravis and George Roberts, is set to report first-quarter results next week, followed by Carlyle Group LP on April 30.

Blackstone said its private-equity funds rose 7 percent in value in the first three months of the year, compared with 8 percent at Washington-based Carlyle and 1.3 percent for the Standard & Poor’s 500 index. The firm’s real estate pools appreciated 3.8 percent in the quarter, compared with 2 percent at Carlyle, which reported fund performance on April 7.

GAAP Income

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 $266 million, compared with $168 million 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 of raising the money, overhaul and then sell them. The funds are returned with a profit to investors 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 percent to 2 percent of committed funds and keep 20 percent of profit from investments as a carried interest.

Blackstone said it returned $11.5 billion to its fund investors during the quarter as the environment for selling holdings “remained strong.” Dispositions in the quarter included the sale of stakes in London’s Broadgate office complex, media-ratings company Nielsen Holdings NV, and oil refiner PBF Energy Inc. The firm last year handed back $38 billion to fund investors, known as limited partners.

‘Prudent Sellers’

“Looking forward, our realization momentum is continuing to ramp up and I believe our shareholders can expect much more,” Schwarzman said on a conference call today with analysts and investors. “We have a very large portfolio of seasoned assets. We’re prudent sellers.”

The firm’s realized carried interest, or the cash it earned from selling holdings at a profit, was $334 million in the first three months of the year, the highest level in five straight quarters. Schwarzman said sales from Blackstone’s private-equity and real estate funds during the quarter were done at an average 3.4 times the firm’s initial investment.

Distributable earnings, which are available to pay to shareholders, rose 24 percent to $485 million in the quarter, Blackstone said. The company plans to pay a dividend of 35 cents a share on May 5.

Worldwide, the value of private-equity deals announced in the first quarter rose 50 percent to $161 billion from the same period last year, according to data compiled by Bloomberg. The number of deals rose 1.1 percent to 1,669 in the same period, the data show.

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