(Reuters) – Blackstone Group LP, the largest publicly listed alternative asset manager, reported lower fourth-quarter earnings as performance fees declined, but management fees increased as its assets grew to a record $137 billion.
Since 2007, when Blackstone raised $4.7 billion in an initial public offering, it has had to serve two constituencies — its limited partners, such as pension funds and endowments, that invest in its funds, and its public stockholders.
Turmoil in the financial markets in 2011 hit it on both fronts. The company has had to mark down the value of some investments and has also seen reversals in carried interest flows — its share of investment profits — weigh on cash distributions.
But the decline in its profits in the fourth quarter was somewhat offset by revenue generated by management fees as the group grew its assets by expanding further into businesses such as real estate, credit markets and hedge funds.
“They continue to grow their assets under management, boosting their fee income, and over time this should lead to an increase in profits, too,” Sandler O’Neill & Partners analyst Michael Kim said.
Performance fees dropped to $358 million in the fourth quarter from $455.5 million a year earlier, while management and advisory fees rose to $495.6 million from $474.7 million.
Economic net income, which measures operating performance, was $450 million, down from $513 million a year earlier. Adjusted ENI was 40 cents per share, matching analysts’ average estimate, according to Thomson Reuters I/B/E/S.
Fee-earning assets under management increased 25 percent from a year earlier to a record $137 billion at the end of 2011.
“Despite volatile markets and struggling economies, Blackstone had strong performance in 2011. Our investors view us as a critical partner, helping them protect and grow their capital,” Blackstone Chief Executive Stephen Schwarzman said in a statement.
Blackstone shares have bounced back since the start of the year on investor optimism that its markets have stabilized. Through Wednesday, the shares were up 18.8 percent this year, compared with a 12.8 percent rise in the S&P 500 Index .INX and a 12 percent rise in the S&P Asset Management and Custody Banks Index .GSPAMCB.
The shares were down 3 percent at $16.14 in morning trading Thursday.
Blackstone announced a fourth-quarter distribution of 22 cents per common unit, bringing its full-year distributions to 52 cents per common unit.
Its available capital for deals, or “dry powder,” was $32.9 billion at the end of 2011, its highest level ever, Blackstone said.
The performance of publicly listed private equity firms is followed closely by investors looking for benchmarks to use in valuing Carlyle Group LP, which has filed for an initial public offering that is expected this year.
Carlyle has $148 billion of assets under management, on a par with Blackstone. In the first nine months of 2011, Carlyle distributed more than $15 billion to its fund investors, a record performance, thanks partly to asset sales. In 2010 it distributed $8 billion.
KKR & Co LP is due to announce earnings on February 9 while Apollo Global Management LLC is due to report on February 10.