Blackstone records sharp losses in Q3

Blackstone CEO Stephen Schwarzman said the firm’s LPs reaffirmed their confidence in Blackstone by increasing their commitments in Q3. The firm has a record $33.4bn of dry powder.

The Blackstone Group’s third quarter losses of $342 million were driven in part by “the sharp decline in global public markets, widening of credit spreads and negative foreign currency adjustments,” the firm said during an earnings call Thursday.

Blackstone’s private equity holdings lost about $285 million during the quarter, bringing revenues through the first nine months of the year to $388 million for the asset class. The losses from Blackstone’s private equity portfolio compare to gains of $215 million during the third quarter of 2010.

The firm’s overall Q3 performance also sharply contrasts the $339 million in gains recorded during the same period last year.

“Underwhelming economic data has contributed to an increasing consensus that growth will contract or even reverse,” chief executive officer Stephen Schwarzman said during the earnings call. “Corporate America has remained resilient however, with strong cash flows in balance sheets, and the market is expecting earnings growth in both 2011 and 2012.”

Few asset managers are generating organic growth and many are seeing dramatic increases in rates of investor attrition. It is exactly in times of uncertainty such as this that the diversity and stability of our business model is most apparent.

Stephen Schwarzman

Despite the losses, Blackstone said its limited partner confidence in the business continues to be strong, as the firm’s LPs “increased their share of funds,” during the third quarter, the firm said.

Blackstone invested $4.8 billion during the period, its highest level of investment activity since 2007. The firm’s funds had $33.4 billion of dry powder at the end of the quarter, a record amount.

One bright spot was Blackstone’s credit business, which generated revenues of $15.4 million during the quarter, and nine-month revenues of $270 million, compared to $313 million during the same period last year.

“In credit, high yield spreads meaningfully widened to levels well above their long term averages,” Schwarzman said. “Blackstone’s stock reflected these negative market forces and declined 28 percent…but has now rallied back 11 percent.”

Blackstone’s mezzanine funds recorded a 7.1 percent return for the quarter.

Goldman Sachs, which also announced third quarter losses of $428 million Thursday, said the results were due in large part to its private equity and debt holdings.

“Few asset managers are generating organic growth,” Schwarzman said, “and many are seeing dramatic increases in rates of investor attrition. It is exactly in times of uncertainty such as this that the diversity and stability of our business model is most apparent, as we grow market share and position our funds for future outsized returns.”