| NEW YORK
NEW YORK Blackstone Group LP (BX.N), the world's largest alternative asset manager, reported higher first-quarter earnings as demand for its real estate and credit funds pushed assets under management to a record and yielded more management fees.
Blackstone, whose performance is monitored closely by investors hoping to divine the fortunes of the upcoming initial public offering of peer Carlyle Group LP, reported net income rose 36.5 percent to $58.3 million.
"Every one of our investing businesses experienced both net capital inflows as well as value appreciation in the quarter," Stephen Schwarzman, founder and chief executive of Blackstone, said in a statement.
Blackstone, whose investments include The Weather Channel, Pinnacle Foods and SeaWorld Parks & Entertainment, said economic net income (ENI), a metric of its profitability that takes into account changes in the market value of its portfolio, dropped to $432.3 million from $571 million a year earlier.
This was because the value of its assets increased at a slower rate in the first quarter of 2012 compared to that of 2011. The firm missed ENI expectations as determining the value of Blackstone's portfolio with precision continued to be elusive.
"The firm showed lower unrealized gains than we expected, the mark-to-market valuations were less favorable. However, we think the firm's long-term fundamentals remain strong," said Sandler O'Neill analyst Michael Kim.
Blackstone's shares are up 5.9 percent year-to-date, compared with a 10.1 percent rise in the S&P 500 Index .INX and a 15 percent rise in the S&P Asset Management and Custody Banks Index .GSPAMCB, according to Thomson Reuters data.
Blackstone shares were trading down about 2.2 percent at $14.51 in Wednesday afternoon trading in a flat stock market in New York.
Distributable earnings -- actual cash available to pay dividends -- came in at $162.1 million, down from $201.9 million the year before. This was because the firm generated less profit from selling assets in its funds.
"I think (realization activity) will pick up towards the end of this year and unless there is a dramatic change in market conditions I would expect it to be much stronger in 2013 and stronger even in 2014," Blackstone Chief Operating officer Tony James told journalists in a conference call.
REAL ESTATE BOOST
Total assets under management were $190 billion at the end of March, a record and up 27 percent year on year. Fee-earning assets under management rose 26 percent to a record $156 billion.
The firm's real estate portfolio increased to $48.3 billion at the end of March 2012 from $35 billion the year before while its credit businesses boasted $50.8 billion in assets compared with $31.5 billion the year before.
This boosted management fees as net fee-related earnings came in at $138 million from $98.5 million the year before. Total performance fees net of compensation plunged to $6.6 million from $81 million the year before.
James said the firm's latest flagship real estate fund, Blackstone Real Estate Partners VII, had raised about $10 billion while its new energy fund had accumulated about $1.5 billion in committed capital.
Private equity accounts for just a quarter of the assets of Blackstone, which also runs a hedge fund group and an investment banking business. On April 13, Schwarzman announced that Garrett Moran, who joined Blackstone in 2005 to streamline its private equity unit, would retire from the firm at the end of June, according to an internal memo seen by Reuters.
The spotlight on private equity has intensified due to Mitt Romney's bid this year for the U.S. presidency. Romney co-founded and served as head of private equity firm Bain Capital LLC, a tenure criticized by political opponents who accuse him of stripping companies of jobs and assets to achieve profits.
Blackstone's Schwarzman is an outspoken supporter of Romney, with whom he has done deals in the past, while James is a backer of President Barack Obama and is planning to host a fundraising event for his reelection campaign.
"The Obama campaign has actually said they are not going to go after the industry but I suspect the super-PACs and what-not will, and so I'm not looking forward to it and I don't think it's fair or right but there's not much I can do about it," James said.
(Reporting by Greg Roumeliotis in New York; editing by John Wallace, Maureen Bavdek and Phil Berlowitz)