(Reuters) – Blackstone Group posted a worse-than-expected quarterly loss on Thursday as market declines hit the value of the private equity firm’s investments, forcing it to book a huge accounting loss.
But Blackstone said assets under management on which it earns management fees increased during the quarter, operating performance of its portfolio companies and properties was strong, and U.S. and European markets had rebounded since Sept. 30.
The company said it had record $33.4 billion of “dry powder,” or capital available to invest, up from $31.4 billion in the second quarter, and expected its latest real estate fund to raise more than $10 billion.
Blackstone invested $4.8 billion in total capital — its highest level of investment activity since 2007 — during the quarter, capitalizing on market dislocations.
“It’s been a quarter of contrasts,” President Tony James said during a conference call with reporters. “We had a very favorable and active environment for new investments.”
Blackstone, for example, bought a 44 percent stake in Leica Camera on Wednesday, when other bidders for the German company dropped out, James said.
The level of deal activity for private equity firms, however, remains muted compared with the pre-crisis years as buying and selling assets has become difficult as markets gyrate and debt financing markets remain tough.
Private equity firms have done $239.8 billion worth of deals so far this year, compared with $730.3 billion over the same period in 2007, according to Thomson Reuters data.
Blackstone’s economic net loss, which measures operating performance, was $342 million, compared with a profit of $339 million a year earlier. Adjusted ENI was a loss of 31 cents per share, lagging analysts’ average estimate of a loss of 5 cents, according to Thomson Reuters I/B/E/S.
Blackstone saw unrealized performance fees — its share in profits after funds hit a typically 8 percent return hurdle — fall to negative $465.2 million.
Performance fees booked over the life of a fund can swing from one quarter to the next as the firm marks its portfolio to market every quarter. It books gains when the investments rise and losses when they fall, so overall it gets a 20 percent share of the profits at the end.
The results signal a tough third quarter for the other major publicly traded private equity firms — KKR & Co and Apollo Global Management — which are expected to report results in the coming weeks.
Fee-earning assets under management rose to a record $132.9 billion, boosting base management fees 20 percent to $322.4 million.
Blackstone’s James said the firm raised $4 billion in the first closing of its global real estate fund, BREP VII. The firm also closed on $2 billion for its next mezzanine fund and is on track to exceed $3.5 billion.
“Our limited partner investors affirmed their confidence in our world-leading businesses and increased their share of funds with us,” Chief Executive Stephen Schwarzman said in a statement. “The third quarter presented extremely challenging market conditions, dominated by risk aversion and volatility.”
Its shares were down 0.6 percent at $13.16 during late morning trading on the New York Stock Exchange.
By Paritosh Bansal