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NEW YORK (Reuters) - Blackstone Group LP reported a 43 percent rise in fourth-quarter profit on Thursday, capping what it called its best year as a publicly listed alternative asset manager, despite a lackluster performance by its flagship real estate business.
Blackstone's private equity business made a strong comeback in 2012 on the back of higher fund valuations, rising 14.3 percent for the year, as markets rallied. Its real estate portfolio rose 14.4 percent, but earnings were roughly flat based on how the firm booked performance fees last year.
A private equity firm founded by Stephen Schwarzman and Peter Peterson in 1985 and that completed an initial public offering in 2007, Blackstone has become more of a real estate firm in recent years, as this franchise has come to dominate its earnings. Though private equity profits rose 86 percent in the fourth quarter, real estate remained the largest earnings contributor.
"2013 should be a higher year for realizations in general ... and 2014 should be another good year. The portfolio that is maturing the fastest and into which there is the best bid to sell, so to speak, is real estate at this point," Blackstone's President Tony James told reporters on a conference call.
Blackstone, the first to report fourth-quarter results in a peer group that includes KKR & Co LP, Carlyle Group LP and Apollo Global Management LLC, said earnings rose strongly in its private equity, hedge funds and credit units.
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 the current market valuation of its portfolio, was $670 million, up 43 percent from a year ago.
ENI in its real estate division was down 2 percent to $246 million. Private equity posted an 86 percent rise in ENI to $198 million, hedge funds a 163 percent rise to $82.7 million and credit a 96 percent rise to $107.2 million.
Overall, Blackstone's adjusted ENI was 59 cents per unit in the fourth quarter, topping an average estimate by analysts of 47 cents.
Blackstone's shares rose 6.9 percent at $18.64 in late morning trading. They had previously risen 11.9 percent this month, outperforming the S&P 500 Index which rose 5.3 percent.
"The strong performance and realized gains coupled with another solid quarter for fundraising reaffirms our view that Blackstone's diversified alternative platform, undervalued future carried interest potential and strong secular flow trends all contribute to what we view as one of the more compelling long-term opportunities in the space," Barclays analysts wrote in a note.
Distributable earnings, which show cash available to pay dividends, jumped 177 percent to $493.8 million in the fourth quarter as Blackstone took advantage of the buoyant equity and debt capital markets to divest more of its investments.
Among Blackstone's exits from investments in 2012 were an initial public offering of U.S. refiner PBF Energy Inc, valuing Blackstone's investment at 4.7 times what it paid, and further share sales of Team Health Holdings Inc, which averaged a value of 3.9 times Blackstone's investment.
In private equity, Blackstone returned $3.5 billion to investors in 2012 at an average 2.1 times their money. Across all its funds, Blackstone said it returned $18 billion to its investors.
Total assets under management were $210.2 billion as of the end of December, up from $204.6 billion at the end of the third quarter. Fee-earning assets under management were $167.9 billion at the end of December, down from $168.6 billion at the end of the third quarter.
Blackstone's undrawn capital, so-called "dry powder" available for deals, was $35 billion at the end of the year. Private equity had $15.7 billion in dry powder and real estate had $11 billion.
New York-based Blackstone declared a quarterly distribution of 42 cents per common unit. It said it intends to increase its base quarterly distribution to 12 cents per unit in 2013, up from 10 cents per unit.
Reporting by Greg Roumeliotis in New York; Editing by John Wallace, Nick Zieminski and Jim Marshall