Blackstone Group (BX) Narrows Loss

There used to be a time when you could tell a stock was reporting because of outsized movement in the stock... nowadays outsized moves are a daily occurrence so actual earnings releases are lost in the mix. Blackstone Group (BX) reported yesterday morning; the results were ok - essentially we started this position as a play on government largess. [Mar 31, 2009: Bookkeeping - Starting Blackstone Group] The theme has truly caught on as even the public semi hedge funds / semi private capital firms have exploded higher.


I chose Blackstone because it was actually the conservative play in the group with a good chance of profits in the future - but as with every sector during this run, buying the most speculative would of done you far better. Fortress Investment Group (FIG) has had a run of epic proportion... you can tell we are back to old times because yesterday FIG ran up well over $1 in after hours just from a mention on "Fast Money" TV show.

On to Blackstone's report

• Private equity company Blackstone Group LP (BX) reported a quarterly loss Wednesday and said its ability to do leveraged deals was still limited, but it topped Wall Street forecasts and paid a full quarterly distribution of 30 cents a share, sending its shares up 10 percent. Blackstone's chief operating officer, Tony James, said on a conference call the company should be able to make a full distribution of $1.20 per share this year, absent any big surprises.
• Blackstone, which makes its money buying distressed companies and then selling them for a profit, said it lost $231.6 million, or 84 cents per common unit, compared with a loss of $251 million, or 95 cents per common unit, during the same quarter last year. The company's economic net loss after taxes, which excludes compensation charges tied to its initial public offering, was $82.4 million, or 7 cents per share, during the first quarter, compared with an economic net loss of $66.5 million, or 6 cents per share, during the year-ago quarter. Blackstone went public at the peak of the private equity boom in June 2007.
• Blackstone said total revenue fell 31 percent to $47.1 million from $68.5 million during the year-ago period.
• "The world is an uncertain place right now," James said. "We believe that we'll have the fee-related earnings ... to make the dividend for the full $1.20. But we're also pretty pessimistic about the world." (this is where I'd normally laugh but we are in the Twilight Zone - so ignore his words and buy stocks)
• James said the company wrote down the value of its private equity portfolio by 3 percent in the quarter, and wrote down the value of its real estate portfolio by 19 percent. Private equity firms are obliged to value their companies as if they were to sell them today, rather than years in the future. (unlike banks for example - post FASB changes, which kicked off this rally)
• James said Blackstone has about $27 billion of "dry powder," meaning capital available to invest. He added that it has commitments from investors of about $8 billion for its sixth buyout fund, which it is in the process of raising. James said on the conference call that capital for buyouts is still scarce but that Blackstone could get debt for deals if the transactions were modest in scale.

These private equity guys were the masters of the universe just 2 years ago in spring/summer 2007 so it is interesting to hear their take... surprisingly more dour than the clarion call for the punditry.

Via AP

• "The underlying economy continues to decline," James said, adding that he stands by a statement he made about a year ago that the current economic turmoil is deeper and more severe than those in recent history. The timing of a turnaround is still uncertain, James added.
• Blackstone generated $344.6 million in management and advisory fees during the first quarter, a 7 percent increase compared with the same quarter a year earlier. Assets under management that generate fees fell slightly to $92.2 billion at the end of the first quarter, compared with $92.9 billion at the same time last year.

1. Blackstone's corporate private equity division revenue turned positive in the first quarter because of performance fees earned in one of the firm's funds. The unit generated $68.4 million in revenue.
2. The real estate division reported negative revenue of $211.9 million because of a decline in the value of certain investments. Negative revenue can occur when a firm has to reverse gains it previously reported tied to an investment.
3. Revenue in marketable alternative asset management more than tripled to $99.5 million amid improving performance fees and a decline in investment losses,
   
4. ....financial advisory revenue improved 29 percent to $92 million because of an increase in restructuring and reorganization advisory services.

At this point the stock is so extended we essentially have nothing but a holding position; extended stocks mean nothing in the current euphoria and people bid things that have run 30-50% in a few days, up more and more. This is fun while it lasts, but it creates massive air pockets below when (some day) the market goes down again (circa 2011 I suppose). I was buying in the $7s and even at $11 it passed my hopes for the next few months. No idea where the market will value it since there is little visibility on earnings - a lot of moving parts here.

Long Blackstone Group in fund; no personal position