World’s largest alternative assets management firm Blackstone recorded its best ever second quarter and first half performance in terms of economic net income (ENI) and distributable earnings as it began collecting profits from its biggest buyout fund.
The firm’s economic net income (ENI) rose 89 per cent to hit $1.3 billion for the quarter ended June 30, 2014 over the year-ago period, as Blackstone’s funds created $9.3 billion of value in the second quarter alone. Total revenue was up 164 per cent to $939 million for the quarter.
Its flagship fund BCP V crossed the preferred return threshold and generated $509 million in performance fees during the second quarter with $5.8 billion of realisations year to date.
Distributable earnings (DE) more than doubled in the quarter year over year on a record level of realisations, bringing the year-to-date total to $1.3 billion.
GAAP net income was $517 million for the quarter, net of certain non-cash IPO and transaction-related expenses and exclusive of net income attributable to non-controlling interests, primarily inside ownership.
Its total Assets Under Management (AUM) reached a record $279 billion, up 21 per cent year over year despite returning $50 billion of capital to investors over the last 12 months.
Gross inflows were $14.5 billion for the quarter and $62.4 billion over the last 12 months on record organic inflows. Blackstone’s portfolio of funds and assets created $37 billion of value in the past one year.
"As more of our assets under management have seasoned, we have been increasingly active in harvesting the value created over several years," said Stephen A Schwarzman, chairman and CEO of Blackstone.
The highlight of the financial performance was its private equity segment, which reported ENI of $647.7 million, almost a four-fold rise over the year-ago period, while real estate posted ENI of $489.4 million, up 32 per cent.
The PE firm's credit investments division reported ENI of $103.8 million, a 27 per cent rise, while the unit that invests in hedge funds saw ENI rising 16 per cent to $83.1 million.
Blackstone’s committed undrawn capital or dry powder stood at $45.3 billion, up 18 per cent from $38.5 billion a year ago. Of the $45.3 billion, $18.6 billion was eligible but not currently earning management fees.
Blackstone’s portfolio company operating approach drove results to record levels and segment appreciation outperformed the broader equity markets with 8.4 per cent appreciation during the quarter and 28.3 per cent over the last twelve months.
Total revenues were up 164 per cent to $939 million for the quarter in addition to 278 per cent rise in ENI from the PE unit.
Realisation activity remained robust with $4.2 billion of proceeds on 10 transactions during the quarter and $14.8 billion on 42 transactions over the trailing 12-month period. Realisations came in primarily from BCP V, including two strategic sales and four partial public market dispositions (Hilton, PBF Energy, SeaWorld and Nielsen).
The firm invested $2.2 billion of total capital during the quarter and taking the trailing 12-month figure to $6.3 billion.
Strategic Partners’ sixth secondary fund of funds closed on $3.2 billion of total capital with a $4.4 billion target.
Overall AUM under PE was $68.3 billion.
Economic income rose 32 per cent to $489 million in the second quarter with improving rents and occupancy across Blackstone’s diversified real estate portfolio.
The Opportunistic Real Estate funds’ carrying value appreciated 6 per cent for the quarter and 28.3 per cent over the 12 months.
The firm had a record realisation quarter, with $6.7 billion of proceeds, driven by partial realisations in Hilton and Brixmor.
The net accrued performance fee was up 10 per cent from prior quarter to $2.7 billion despite significant realisations. As much as 70 per cent of unrealised gains are in public equities and liquidating office portfolios.
It raised $2 billion of capital during the quarter including $1 billion for the Asia fund, $226 million for Core+ and $858 million in debt strategies.
It invested $3.1 billion of total capital during the quarter, taking the trailing 12-month figure to $11.6 billion.
The total AUM under the real estate vertical was $80.4 billion at the end of the last quarter.
Blackstone, one of the significant PE investors in India over the years, completed two deals in the realty space in the country last quarter. It completed a pending deal, one of the largest in Indian commercial realty space, where its joint venture with southern realty major Embassy Group acquired majority stake in Vrindavan TechVillage, a large business park in Bangalore, from three of the four stakeholders.
The deal routed through Embassy Office Parks, an equal equity JV between Embassy Group and Blackstone, picked 60 per cent stake in a deal which valued the property at Rs 1,951 crore ($324 million), including debt.
It also invested Rs 175 crore ($29.06 million) in a Chennai residential project of Bangalore-based Ozone Group. This arguably marked one of the first known standalone residential project investments for Blackstone, which has been focusing on larger ticket size deals for rental commercial properties.
From a realisation perspective, it part exited garment exporter Gokaldas Exports selling 5.6 per cent stake out of its 68.2 per cent holding for Rs 16.19 crore through a secondary market share sale. This translated into around 70 per cent haircut on its investment.
This marks the third exit or part exit for the PE firm from its Indian portfolio to date and the first at a loss. Its previous exits from two privately held firms—Intelenet and Emcure—were through M&A and secondary PE transactions, respectively.
(Edited by Joby Puthuparampil Johnson)