Blackstone’s second quarter earnings triple(3)

The US merchant banking group has tripled profits reporting “strong results” in its private equity, real estate, financial advisory and fund management businesses, despite watching its unit price fall 20 percent since the IPO.

The Blackstone Group reported revenues three times higher for the quarter to the end of June of $975.3 million (€714 million) compared with the same period last year in its first results since listing on the New York Stock Exchange.

The price of its units, which have traded consistently at around 20 percent below its issue price of $31 per unit, jumped nearly 5 percent during Monday morning trading, and had settled to $26.16 per unit by late afternoon.

Blackstone, which last week closed the largest buyout fund ever, saw second quarter net income rise from $224.1 million in the quarter ending June 2006 to $774.4 million in the same three months in 2007.

“Every single one of our products is way outperforming the general markets, either debt or equity,” Hamilton James, the firm’s president and chief operating officer, said during an earnings call Monday. “I think, long-term, we’ll see a robust shift [in the US] from more traditional asset classes to alternatives.”

Corporate private equity revenues in the quarter increased to $426.1 million against $125.6 million in the same period the previous year. Real estate revenues grew from $92.0 million to $320.2 million in the prior year.

Revenues from its marketable alternative asset management jumped to $168.6 million from $32.5 million  Its financial advisory business generated the least dramatic growth with its revenues of $98.6 million, a small increase from $83.8 million in the same quarter in 2006.

Over six months to the end of June, revenues of $2.2 billion and net income of $1.9 billion compare with revenues of $880.1 million and net income of $711.2 million a year ago.

Throughout much of the second quarter, the operating environment was fundamentally positive, with global equity markets approaching near-record levels and the global economy, particularly in the US, remaining healthy.

Concerns over weakness in the US housing market and sub-prime mortgage market, coupled with a large volume of debt financing-backlog related to leveraged equity transactions, served to create more challenging financing conditions starting in the last week of the quarter, which continue to date, the company said.

Corporate private equity reported a strong second quarter with revenues up 239 percent from the second quarter of 2006, largely driven by a rise in performance fees and carried interest allocations and investment income as net appreciation from underlying funds increased $1.7 billion from the second quarter 2006. Management fees declined slightly over the same period.

Weighted average fee-earning assets in the quarter totalled $23.5 billion compared with $20.5 billion a year ago. Limited partner capital deployed in the quarter totalled $1.6 billion compared with $2.4 billion a year ago.

At 3 July, 2007, $5.9 billion of investor capital had been committed by Blackstone’s corporate private equity funds to deals that are scheduled to close in subsequent periods.

In the same period the real estate segment generated revenues of $320.2 million, up 248 percent from the second quarter 2006. Management, performance fees and carried interest allocations and investment income were all up significantly, the company said.

Weighted average fee-earning assets under management in the quarter totalled $15.3 billion compared with $9 billion a year ago. Investor capital deployed in the quarter ended June 2007 totalled $71.1 million, down from $612.7 million last year.

Approximately $2.9 billion of LP capital has been committed by Blackstone’s real estate funds to deals not yet closed. This includes capital committed from both real estate and corporate private equity to the purchase of Hilton Hotels Corporation, which is fully financed and is expected to close in the fourth quarter.

Marketable alternative asset management, Blackstone’s hedge fund business, recorded second quarter revenues of $168.6 million, an increase of 419 percent from the same period last year, reflecting solid investment performance and a significant increase in assets managed, the company said.

Weighted average fee-earning assets under management in the quarter totaled $32.7 billion compared with $18.7 billion last year, as investor flows remained robust and investment performance was favourable.

Financial advisory revenues rose 18 percent to $98.6 million in this year’s second quarter, as compared to the same period last year, reflecting a favourable environment for mergers and acquisitions and Park Hill’s capital raising for alternative assets, which offset a generally soft environment for the restructuring and reorganization business.

On 27 June Blackstone completed its initial public offering of its common units and the sale of non-voting common units to an investment vehicle established by The People’s Republic of China.

In aggregate, The Blackstone Group sold approximately 255 million units for net proceeds of $7.5 billion.

The company said $2.9 billion was retained for primary purposes, of which $1.2 billion was used to repay indebtedness, with the balance invested as general partner investments in Blackstone sponsored funds and temporary interest bearing investments as appropriate.