By Miriam Gottfried
Blackstone Group Inc. posted slightly higher net earnings for
the third quarter as its focus on technology-related investments
helped its private-equity portfolio rise above already buoyant
broader markets.
Blackstone posted net income of $794.7 million, or $1.13 a
share, for the third quarter. That compares with a profit of $779.4
million, or $1.15 a share, a year earlier.
The value of the New York firm's private-equity portfolio
climbed by 12.2%, compared with an 8.5% increase in the S&P 500
during the period. That marked Blackstone's second straight quarter
of greater-than-12% appreciation for the portfolio, a dramatic
reversal from the first quarter, when coronavirus-related market
turmoil pushed valuations down by 21.6%.
Blackstone's recent emphasis on putting money to work in
fast-growing companies -- a key aspect of President Jonathan Gray's
strategy for navigating expensive markets -- has fueled the
gain.
"The big drivers for us were the technology-oriented investments
that we own," including dating app Bumble, data provider Refinitiv
and warehouses used for e-commerce, Mr. Gray said in an interview.
"It's these on-theme investments that drove the performance in the
quarter."
Blackstone's distributable earnings, or the amount of cash that
could be returned to shareholders, came in at $772.1 million, or 63
cents a share, in the third quarter. That compares with $709.9
million, or 58 cents per share, a year earlier.
The firm's fee-related earnings climbed 39% year-over-year to
$610.9 million as the real-estate and private-equity funds it
finished raising last year began to generate fees. So-called
perpetual capital, which generates a steady stream of locked-in
fees because it doesn't need to be immediately returned to
investors, reached $115.2 billion, up 19% over the third quarter of
2019.
Shares of Blackstone fell 4.3% in morning trading as a rise in
coronavirus cases caused the broader market to sell off. Also
weighing on the shares of private-equity firms has been a concern
that a Democratic sweep of the election will lead to higher
corporate tax rates and harmful regulations.
On a call with analysts Wednesday to discuss Blackstone's
results, Mr. Gray acknowledged such possible "headwinds" but said a
"blue wave" also could have some benefits for the firm's
infrastructure and renewables businesses. More federal funding for
fiscally challenged urban centers such as New York and San
Francisco also could benefit Blackstone's portfolio, he said.
"This firm has been around for 35 years. We've been in
environments that have been all red, all blue and mixed," Mr. Gray
said. "We've been in an environment of rising taxes and regulatory
focus and declining taxes and regulatory focus. And the thing
that's been consistent is we've delivered great results for our
clients and the firm's grown."
Blackstone, along with a number of peers last year, opted to
abandon its partnership structure and become a corporation. That
became a realistic option after the tax law passed in late 2017
lowered the highest corporate rate to 21% from 35%.
A theoretical 25%-to-28% future corporate tax rate would result
in additional average earnings dilution in the low single digits
for the firm over the next several years, and modestly higher
beyond that, Chief Financial Officer Michael Chae said
Wednesday.
Assets under management were roughly $584 billion, up from about
$564 billion at the end of the second quarter and $554 billion a
year earlier. Blackstone has set a goal of reaching $1 trillion in
assets by 2026.
Blackstone raised $15.1 billion during the quarter, and it began
to shovel away at its mountain of unspent cash. In August, the firm
said it was buying genealogy-research company Ancestry for $4.7
billion, including debt. Blackstone also struck a deal to buy
Takeda Consumer Healthcare Company Ltd., a subsidiary of Japanese
drugmaker Takeda Pharmaceutical Company Ltd.
The firm was able to take advantage of rising markets by exiting
some of its investments, including the $7 billion sale of its 42%
stake in Cheniere Energy Partners LP to Brookfield Infrastructure
Partners LP and Blackstone's own infrastructure funds. While it
happened after the third quarter ended, the firm also recapitalized
its investment in BioMed Realty, selling the portfolio of
life-sciences buildings to another one of its funds for $14.6
billion.
Both Cheniere and BioMed rank among the firm's most-profitable
deals of all time.
"Some have been worried about real estate, but not all real
estate is created equal," Mr. Gray said. "Our biggest office
holdings, for example, are life-sciences offices."
In credit, Blackstone's direct-lending business had inflows of
$585 million in the quarter, bringing its total assets to $21.3
billion and marking a complete rebuilding of the platform 2 1/2
years after selling its joint venture with FS Investments to KKR
& Co. After the end of the third quarter, the firm began
fundraising for a new nontraded business development corporation,
which it hopes will be the credit version of its successful
nontraded real-estate investment trust BREIT.
Blackstone said it would pay a dividend of 54 cents a share,
versus 49 cents a year earlier.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com
(END) Dow Jones Newswires
October 28, 2020 11:49 ET (15:49 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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