Blackstone Group LP, the world’s biggest buyout firm, said first-quarter profit rose as market gains lifted the carrying value of its holdings. The shares fell after the company said a lackluster economy may curtail investing.
Economic net income, a measure of earnings excluding some costs, increased 28% to $628.3 million, helped by a 10% gain in U.S. stocks in the first three months of the year, New York-based Blackstone said today. Tony James, the firm’s president, said while stock markets have made “pretty robust” gains, they’ve been driven by low interest rates.
“Growth in the U.S. economy is anemic” and “Europe is flat to down,” James said on a conference call. Debt markets, which helped fuel a resurgence in large leveraged buyouts, are at “some kind of peak.”
Blackstone shares reversed earlier gains, falling as much as 4.5%, after James’s comments and as U.S. stocks dropped for a second day. The company last month proposed to buy computer maker Dell Inc., rivaling a $24.4 billion offer by Michael Dell and Silver Lake Management LLC, the largest proposed LBO since the financial crisis. James and Chief Executive Officer Stephen Schwarzman have led a push among buyout firms to expand into other alternative assets such as credit, hedge funds and real estate to cut reliance on buyouts.
Blackstone fell 1.9% to $20.05 at 1:37 p.m. in New York trading as the Standard & Poor’s 500 index of large U.S. companies lost 0.4%. The shares advanced 31% this year through yesterday.
Blackstone’s economic net income, or ENI, differs from U.S. generally accepted accounting principles. Under those standards, known as GAAP, Blackstone had net income of $167.6 million, or 29 cents per share, compared with $58.3 million, or 11 cents, a year ago.
Economic net income of 55 cents a share beat the 53-cent estimate of 15 analysts in a Bloomberg survey.
“Upside appears to have come from the credit funds as well as private equity,” said Roger Freeman, an analyst for Barclays Plc in New York. “We continue to believe that real estate realizations will grow.”
Blackstone completed six follow-on deals, selling shares in companies it owns as markets rose, as well as a $580 million IPO of portfolio company Pinnacle Foods Inc. during the quarter. The firm is preparing to take public SeaWorld Entertainment Inc., which it bought as part of a $2.7 billion deal in 2009, in an IPO this week that could raise as much as $702 million.
The firm lost in bidding for Life Technologies Corp., which agreed this week to be sold to Thermo Fisher Scientific Inc. for $13.6 billion.
“We had a slow investment rate for the quarter,” said Schwarzman. “We missed one or two large situations where we would have ended up putting $1 billion or more into a transaction.”
Blackstone realized $319 million in performance fees by exiting investments during the quarter, compared with $19 million a year earlier. Including unrealized gains, performance fees rose 57% to $604 million, helped by gains of 47% in Blackstone’s private-equity business, 49% in the real estate unit, 161% in its hedge funds-of-funds segment and 50% in the credit business, known as GSO.
Blackstone is seen as a bellwether for the buyout industry given its size and reach across markets. KKR & Co., the New York-based firm run by cousins Henry Kravis and George Roberts, is set to report results next week. Carlyle Group LP, the Washington-based firm that manages 113 funds and 67 funds-of- funds, is scheduled to report next month.
Blackstone’s assets under management rose 3.8% from the end of 2012 to $218.2 billion, a record among private-equity and alternative-asset managers. The firm has $36 billion in unspent capital commitments, known as dry powder.
Fund holdings benefited from a 10% increase in the S&P 500 and a 6% gain in the MSCI All-Country World Index during the first three months of the year.
Blackstone’s private-equity portfolio rose 7.9% during the quarter, driven primarily by holdings in its $21 billion Blackstone Capital Partners V pool, raised before the U.S. financial crisis. The fund has a 4% net internal rate of return and is valued at 1.3 times its invested capital, Blackstone said.
Worldwide, the value of private-equity deals announced in the first quarter rose 16% to $114 billion from a year earlier, with leveraged buyouts more than doubling to $55 billion, according to data compiled by Bloomberg.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, overhaul then sell them, and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5% to 2% of committed funds and keep 20% of profit from investments.
Blackstone said it will pay a dividend of 30 cents per common unit on May 6.