Blackstone Group Inc, the world's largest manager of alternative assets such as private equity and real estate, reported a 4% rise in first-quarter distributable earnings on Thursday, driven by a surge in management fees, even as its funds took a hit in the coronavirus-induced downturn.
Blackstone, whose shares were up 5.3% at $48.78 in early afternoon, posted a 16% rise in management and advisory fee revenue thanks to its continued fundraising. That offset a 32% drop in revenue generated from performance fees it books when it cashes out on assets.
Distributable earnings (DE) rose to $557.1 million from $538 million a year earlier. This translated into DE per share of 46 cents, lower than the 50 cents that analysts estimated on average, according to data compiled by Refinitiv.
Global stock markets have tumbled as stay-at-home measures to fight the coronavirus pandemic have shut down large swathes of the economy, weighing on Blackstone's portfolio.
Blackstone said the value of its private equity funds fell by 21.6% in the first quarter, compared with a 20% drop in the benchmark S&P 500 Index over the same period. This reflected the economic impact not just of the COVID-19 pandemic, but also of the steep decline in oil prices that weighed on Blackstone's holdings in the energy sector. Excluding the energy sector assets, Blackstone said its private equity portfolio declined 11.1%.
Blackstone's opportunistic and core real estate funds depreciated by 8.8% and 3.9%, respectively, during the quarter.
While this plunge in the mark-to-market value of its holdings does not affect Blackstone's cash position, it takes a big toll on its earnings when reported under generally accepted accounting principles (GAAP). Blackstone posted a net GAAP first-quarter loss of $2.6 billion, compared with a year-ago profit of approximately $1.1 billion.
"We entered this crisis in a position of great strength, having recently completed a two-year fundraising cycle of nearly $250 billion. With ample capital reserves, long-term fund structures, and over $150 billion of dry powder capital – more than anyone in our industry – we are uniquely positioned to invest on behalf of our clients at a time of historic dislocation," Blackstone CEO Stephen Schwarzman said in a statement.
A $2.3 trillion U.S. economic stimulus package provides aid to small and mid-sized businesses impacted by the pandemic through the Small Business Administration (SBA) and programs rolled out by the U.S. Federal Reserve.
However, none of the companies that Blackstone controls have applied for funding through the SBA's Paycheck Protection Program or the Federal Reserve's Main Street Lending Program, and they are unlikely to do so, Blackstone President Jonathan Gray told analysts on a conference call.
The New York-based firm has invested $11 billion in public equities and liquid debt since the onset of the pandemic, and is looking to provide rescue financing to companies in distress, Gray said.
Blackstone said it expected the pace of its fundraising activity to slow down given the travel restrictions imposed by governments battling the new coronavirus and the impact of the crisis on the portfolio of its fund investors.
"I've been talking to all of our big limited partners, who say they do have to pause. Some retail investors, we've seen a slowdown in that channel," Gray said.
"That being said, a number of our customers are sort of still open for business, and that's the reason why I still think we'll have a healthy year for fundraising, but not the pace we were expecting, certainly six weeks ago."
Some of Blackstone's fund investors include large public pension funds, whose state finances are under pressure because of the crisis. But Gray said he expected them to meet their funding commitments to Blackstone, as they did during the 2008 financial crisis.
Blackstone is seeking to raise $7 billion for its fourth GSO credit opportunities fund to provide funding for companies, sources told Reuters on Thursday. A Blackstone spokesman declined to comment. Bloomberg had earlier reported the fundraising.
Blackstone's total assets under management fell to $538 billion in the quarter, from $571.1 billion in the prior quarter. It declared a quarterly dividend of 39 cents per share.