Blackstone Group LP (BX.N), the world's largest alternative asset manager, reported a 28 percent rise in first-quarter profit on Thursday as its real estate, private equity, credit and hedge fund units successfully sold assets.
Blackstone sold some $6 billion worth of assets in the quarter as buoyant financing markets and a rise in asset values offered an attractive window of opportunity to exit investments, many of which are held for several years.
"Strong markets have opened up opportunities for us to harvest attractive gains for our limited partners and increase distributions to our public unit holders," Blackstone President Tony James told reporters on a conference call.
Among Blackstone's first-quarter asset sales in private equity was an initial public offering of Pinnacle Foods (PF.N) as well as secondary share sales at TRW Automotive Holdings Corp TRW.N, Team Health Holdings Inc TMH.N, Danish phone company TDC A/S (TDC.CO), Kosmos Energy Ltd (KOS.N), BankUnited Inc (BKU.N) and television ratings company Nielsen Holdings NV (NLSN.N).
Blackstone reported economic net income (ENI), a measure of profitability that takes into account the fair-market value of its portfolio, of $628.3 million, up from $491.2 million a year earlier. This translates into 55 cents per share, a penny above the average forecast of analysts polled by Thomson Reuters.
Blackstone shares were down 2.2 percent to $19.99 when the S&P 500 Index .INX was down 0.6 percent. Blackstone shares had rallied 31 percent from the start of the year till the end of trading on Wednesday.
"We believe higher expected realizations in 2013/2014 versus 2011/2012 should drive distributions and the stock price higher," BMO Capital Markets analysts wrote in a note.
The rise in ENI was due to cash generated from selling assets rather than fees Blackstone charged investors to manage their money. Distributable earnings - actual cash available to pay dividends - jumped 134 percent to $379 million.
Fee-related earnings, comprising primarily fees paid by investors to participate in Blackstone's funds, were down 6 percent to $137.7 million as Blackstone did not benefit from one-off items in its funds it saw in the first quarter of 2012.
Real estate, which makes up more than half of Blackstone's earnings, reported ENI of $352.9 million, up 32 percent. Private equity was up 15 percent to $103.2 million, corporate credit was up 13 percent to $98.5 million, while its hedge fund-of-funds business was up 41 percent to $93.9 million.
Blackstone's financial advisory business, which offers M&A, restructuring and fundraising services to clients has struggled to become a major contributor to the firm's earnings, cut its losses by 3 percent to $10.2 million.
Blackstone's real estate portfolio appreciated 6.3 percent in the first quarter while its private equity portfolio appreciated 7.9 percent.
Total assets under management were a record $218 billion as of the end of March, up 15 percent from a year earlier. Fee-paying assets under management were up 9 percent at $171 billion.
Blackstone, whose investments also include SeaWorld Entertainment Inc (SEAS.N), which is about to go public, said it had $35.8 billion as available capital for investments as of the end of March. Blackstone invested just $325 million last quarter in private equity, compared to $4.4 billion during the last twelve months.
Blackstone co-founder and Chief Executive Stephen Schwarzman told analysts on a conference call that Blackstone, which is currently a bidder for computer maker Dell Inc DELL.O, missed some big deals in the last quarters, including Life Technologies Corp (LIFE.O).
"We had a slow investment rate for the current quarter, but I don't look at life in terms of quarters. And we missed one or two large situations where we would have ended up just putting $1 billion or more in just one transaction, and then these numbers would have looked different," Schwarzman said.
Blackstone launched its first dedicated Asian real estate fund earlier this year and is expected to cross the $1 billion fundraising mark in the second quarter, Schwarzman said. It has also raised $2 billion towards a $3 billion property debt fund, he added.
Blackstone also said its second rescue lending fund had amassed $3.3 billion and was expected to raise $5 billion by June, while its tactical opportunities business, which has a mandate to invest across asset classes, had raised $2.6 billion.
Earlier this month, Blackstone launched the first-ever actively managed exchange traded fund focused on senior bank loans. Schwarzman said on the call that he did not eat red meat and so had nothing to do with that fund's name, SIRLOIN (SRLN.P). <ID:L2N0CR1PQ>
Blackstone declared a quarterly distribution of 30 cents per common unit, up 200 percent year-over-year.
Blackstone was founded by Schwarzman and Peter Peterson in 1985. It completed an initial public offering in 2007.
(Reporting by Greg Roumeliotis in New York; Editing by John Wallace, Sofina Mirza-Reid and Kenneth Barry)