Blackstone urges US to follow its lead

Blackstone’s Q2 earnings in private equity rose as the firm increased job numbers, leading president Tony James to suggest the US economy would be fixed if it had performed similarly.

The US should look to The Blackstone Group for tips on how to cut down the 9 percent unemployment rate hindering economic recovery, according to the firm’s president Tony James.

The listed firm increased employment in its companies across the private equity portfolio by 7 percent in 2010, adding about 23,000 US jobs. If the US economy had performed similarly, “the nation’s problems would be over”, James said during a media call for the firm’s second quarter earnings Thursday.

For Blackstone, the news was all positive in the second quarter, despite what James characterised as a “sputtering economy” and an “anaemic deal environment”.

Blackstone reported second quarter earnings Thursday that showed revenues in private equity soaring to $399.4 million from $83.9 million last year. Revenues over a sixth-month period nearly doubled to $673 million from $360.7 million during the same period last year. Earnings rose to $273.2 million from $18.7 million for the same period last year.

Tony James

Increases in performance and management fees and investment income drove the revenue numbers this quarter, the firm said in a statement. Overall, underlying assets in Blackstone’s private equity funds appreciated 9 percent in the second quarter, the firm said.

The Blackstone Group is armed with $17.3 billion in dry powder in private equity, an amount that includes about $16.1 billion in the listed firm’s sixth mega-buyout fund. The firm invested about $667 million over the quarter, up from the $469.8 million the firm invested in the same period last year.

However, Blackstone VI, the mega-fund the firm has been raising since 2008, has still not officially closed. When pressed during the call, James seemed not to know if the fund had held a final close.

“I’m not sure when the final close happened exactly, I’m not sure it makes that much difference,” he said. “We went through a period with closings every month.” Toward the end of the call, James said staff told him the fund was still being held open for a few last-minute investors.

The real star of Blackstone’s show Thursday was real estate, which posted huge increases in revenues. In the second quarter, the firm reported revenues of $648.5 million, compared to $208.5 million in the same period last year. Over six months, the firm’s revenues were $1.2 billion, compared to $360.7 million in 2010.

Real estate earnings jumped to $453.5 million in the second quarter from $121.4 million in the same period in 2010.

The increases were driven by the firm’s “catch-up” provisions in its real estate funds, which mandate that the fund must hit preferred returns before the firm can start earning performance fees. Improving operating performance, projected cash flows and exit multiples led to an increase in the funds’ carrying values, which drove the increase in performance fees.

As of 30 June, unrealised value and cumulative realised proceeds in Blackstone’s real estate funds represented a 1.4x overall return multiple, the firm said in a statement.

Blackstone had $7.4 billion in dry powder as of 30 June for real estate investments. The firm invested $2.8 billion during the quarter, up from $643.8 million in the same period last year. The firm’s sixth real estate fund was about 87 percent invested at the end of the second quarter. The firm expects to hold a first closing on its seventh real estate fund this quarter, James said.