The Blackstone Group reported fourth quarter and full year results Thursday. Fourth quarter economic net income rose 56% to $512.7 million, while ENI for the full year more than doubled to $1.4 billion. Revenue for Blackstone’s PE division was $828.4 million in 2010, up from $775.2 million in 2009. Blackstone said it has $16.5 billion in dry powder as of Dec. 31. Economic net income, a measure used by PE firms to report earnings, represents income from fees, investment income minus expenses and gains on investments.
The Blackstone Group L.P. (NYSE: BX) today reported its 2010 results.
Economic Net Income (“ENI”) was $1.4 billion for the full year 2010, an increase of $714.5 million compared to ENI for the full year 2009, more than double that of the prior year. The increase in ENI was driven principally by strong performance across the investment segments which produced $1.5 billion in Performance Fees and Investment Income, up from $273.6 million for the full year 2009. That strong performance continued through the fourth quarter where ENI was $512.7 million, up 56% from $329.4 million earned in the fourth quarter of 2009.
Blackstone’s Fee-Earning Assets Under Management and Total Assets Under Management showed strong growth, rising to a record $109.5 billion and $128.1 billion, respectively, driven both by net inflows and market appreciation. Blackstone committed nearly $10 billion in new investments across its diverse investment businesses in 2010 and had $30 billion of committed but uninvested capital or, “dry powder”, at the end of 2010.
For the full year 2010, Total Segment Revenues were $3.1 billion, up 75% from 2009. The increase was driven by higher Performance Fees in the Real Estate and Credit and Marketable Alternatives segments and a sharp increase in Investment Income to $548.5 million, up from $33.4 million in the prior year due to increases in the carrying value of Blackstone’s capital invested in its own funds, particularly in the Real Estate and Private Equity segments.
Total Segment Expenses were $1.6 billion for the full year 2010, an increase from $1.1 billion for the full year 2009, driven largely by increased accruals for Performance Fee Compensation of $357.0 million for the full year. Compensation, excluding Performance Fee Compensation, was up 12% to $859.1 million. Blackstone’s non-compensation expenses were up 15% from full year 2009 driven mostly by fundraising and financing activities. Without these activities, non-compensation expenses were up 2%, reflecting Blackstone’s ongoing expense discipline and focus on operating leverage.
Net Fee Related Earnings from Operations were $442.3 million for the full year 2010, up from $410.4 million for the full year 2009. Net Fee Related Earnings from Operations for the full year increased principally as a result of increased Management and Advisory Fees which were up 10% year over year.
GAAP results for the year ended December 31, 2010 included Revenues of $3.1 billion, compared to $1.8 billion for the full year 2009, and Net Income (Loss) Attributable to The Blackstone Group L.P. of $(370.0) million, compared to a net loss of $715.3 million for the full year 2009. GAAP results for the fourth quarter of 2010 included Revenues of $1.1 billion, compared to $725.3 million for the fourth quarter of 2009, and Net Income (Loss) Attributable to The Blackstone Group L.P. of $(11.0) million, compared to a net loss of $143.3 million for the fourth quarter of 2009.
Stephen A. Schwarzman, Chairman and Chief Executive Officer, said, “Blackstone exited 2010 in a stronger position than ever before, with all of our businesses experiencing higher levels of activity. The carrying values of our investment funds continued to increase sharply, driving our best quarterly earnings result in nearly four years. In 2010, we continued to provide our limited partner investors with best-in-class returns across all of our businesses, and our LPs entrusted us with nearly $18 billion in new capital. These inflows, combined with rising asset values, helped drive total assets under management to $128.1 billion as of year-end, up from $98.2 billion as of year-end 2009.”
The table below details Blackstone’s ENI, Net Fee Related Earnings from Operations, Distributable Earnings and Fee-Earning Assets Under Management as of, and for, the fourth quarters of 2010 and 2009, and for the full years 2010 and 2009. ENI, Total Segments includes unrealized gains (losses) and the direct compensation impact related to those gains/losses, but excludes IPO and acquisition-related charges.
Quarter Ended December 31,
Year Ended December 31,
2010 2009 $ % 2010 2009 $ %
(Unaudited, Dollars in Thousands, Except Per Unit Amounts)
Economic Net Income,
Provision for Income
93,357 36,464 56,893 156 % 163,109 20,628 142,481 N/M
Economic Net Income,
$ 512,749 $ 329,381 $ 183,368 56 % $ 1,417,661 $ 703,135 $ 714,526 102 %
Economic Net Income, After
Taxes per Adjusted Unit (b)
$ 0.46 $ 0.29 $ 0.17 59 % $ 1.26 $ 0.63 $ 0.63 100 %
Net Fee Related Earnings from
$ 122,740 $ 139,163 $ (16,423 ) -12 % $ 442,314 $ 410,410 $ 31,904 8 %
Distributable Earnings $ 239,197 $ 212,834 $ 26,363 12 % $ 701,784 $ 478,972 $ 222,812 47 %
per Common Unit (c)
$ 0.20 $ 0.19 $ 0.01 5 % $ 0.62 $ 0.44 $ 0.18 41 %
Fee-Earning Assets Under
Private Equity $ 24,188,555 $ 24,521,394 $ (332,839 ) -1 %
Real Estate 26,814,714 23,708,057 3,106,657 13 %
Credit and Marketable
Total Fee-Earning Assets
$ 109,500,222 $ 96,096,997 $
Represents the implied provision for income taxes calculated using a similar methodology applied in calculating the tax provision for The Blackstone Group L.P.
Adjusted Units represents the weighted-average fully diluted unit count for Economic Net Income purposes using the if-converted method. A reconciliation of this item to the comparable GAAP measure is presented in Exhibit 4 to this release.
See Exhibit 4 for the calculation of Distributable Earnings Units Outstanding.
Private Equity had full year revenues of $828.4 million, compared with revenues of $775.2 million for the full year 2009, reflecting an increase in Investment Income to $168.6 million from $70.2 million in 2009.
Private Equity had Realized Performance Fees and Realized Investment Income of $172.2 million resulting from realizations in its BCP IV fund. BCP IV has a net realized internal rate of return of 52% since inception and has $5.6 billion of carrying value remaining.
The net return for Blackstone’s contributed Private Equity funds was 26.5% for the full year 2010 reflecting an improved operating environment and an increase in cash flows and operating results across the portfolio companies compared to the prior year. The net return for Blackstone’s contributed Private Equity funds was 1.4% in the fourth quarter of 2010. As of December 31, 2010, the unrealized value and cumulative realized proceeds, before carried interest, fees and expenses, of Blackstone’s contributed Private Equity funds represented 1.5 times investors’ original investments. Excluding funds which were still in their Investment Period, the value was 2.3 times investors’ original investments.
Economic Net Income was $485.5 million for the full year 2010, down from $490.4 million for the full year 2009, a result of lower Transaction Fees and Performance Fees.
BCP V closed its investment period on January 7, 2011, thereby commencing the investment period for BCP VI. BCP VI, which is a $14.7 billion fund as of that date, will begin recognizing fees on the fee-earning portion, which will be included in Fee-Earning Assets Under Management in the first quarter of 2011 and is not included in full year 2010 results. Fee-Earning Assets Under Management were down slightly to $24.2 billion compared with $24.5 billion for 2009 due to the realization or exit of investments, primarily in BCP IV.
Dry powder for Private Equity, which is inclusive of amounts related to BCP VI, was $16.5 billion as of December 31, 2010. Limited Partner Capital Invested during the full year 2010 totaled $1.7 billion, an increase from $1.5 billion invested during the full year 2009. Blackstone had $1.9 billion of Limited Partner Capital committed to new or existing deals made by the segment’s Private Equity funds as of December 31, 2010.
Real Estate had full year revenues of $1.0 billion, compared with negative revenues of $13.6 million for the full year 2009. Improved operating performance across hospitality and office segments led to a rise in carrying values in the real estate portfolios which drove an increase in Performance Fees and Investment Income.
The net return for Blackstone’s contributed Real Estate carry funds was 81% for 2010, while the net returns for the Real Estate debt hedge funds was 18% for 2010. The net return for Blackstone’s contributed Real Estate carry funds was 19% for the fourth quarter of 2010, while the net returns for the Real Estate debt hedge funds was 2.9% for the fourth quarter of 2010. As of December 31, 2010, the unrealized value and cumulative realized proceeds, before carried interest, fees and expenses, of the Real Estate segment’s carry funds represented 1.4 times investors’ original investment. Excluding funds which were still in their Investment Period, the value was 1.6 times investors’ original investments.
ENI for the Real Estate segment was $639.5 million for the full year 2010 compared to a loss of $117.5 million for 2009.
Fee-Earning Assets Under Management were $26.8 billion compared with $23.7 billion for 2009, reflecting the continued fundraising of Blackstone’s Real Estate debt platform which reached $1.5 billion in Fee-Earning Assets Under Management, up 80% from the prior year, and the commencement of Blackstone’s management of the Merrill Lynch Asia assets which added $2.1 billion in Fee-Earning Assets Under Management.
Dry powder for Real Estate was $9.1 billion as of December 31, 2010. Limited Partner Capital Invested during 2010 was $4.1 billion, up from $884.2 million in 2009. Limited Partner Capital Invested during the fourth quarter of 2010 was $2.3 billion, up from $381.3 million during the fourth quarter of 2009. Blackstone’s Real Estate segment’s funds had committed $332.2 million of Limited Partner Capital to new transactions which had not yet closed as of December 31, 2010. This active investment pace has resulted in the segment’s BREP VI fund reaching approximately 70% invested or committed capital at the end of 2010. Accordingly, Blackstone expects to commence fundraising for its next real estate fund later in 2011.
Credit and Marketable Alternatives (CAMA)
CAMA segment revenues were up 34% to $845.4 million for the full year 2010 compared with revenues of $632.3 million for the full year 2009. The increase from 2009 was due to strong inflows across CAMA’s funds and asset classes. Strong fund performance drove sharp increases in Performance Fees, which more than doubled to $320.7 million, and an increase in Total Management Fees of 21% to $471.9 million.
The net core funds composite returns for Blackstone’s funds of hedge funds was 3.6% for the fourth quarter of 2010 and 8.5% for the full year 2010.
The net core funds returns in Blackstone’s credit-oriented business were 5.7% for the credit-oriented special situations hedge funds, 5.8% for the GSO legacy mezzanine debt drawdown funds and 6.1% for the GSO distressed drawdown funds for the fourth quarter of 2010. For the full year 2010, the net core funds returns in Blackstone’s credit-oriented business were 15.7% for the credit-oriented special situations hedge funds, 17.9% for the GSO legacy mezzanine debt drawdown funds and 35.9% for the GSO distressed drawdown funds.
ENI for the CAMA segment was also up 40% to $372.0 million for the full year 2010 compared to $265.2 million for the full year 2009 as the strong fund performance drove sharp increases in Management and Performance Fees for both the funds of hedge funds and credit-oriented businesses.
Fee-Earning Assets Under Management for the segment grew 22% to a record $58.5 billion from $47.9 billion in 2009. The increase from 2009 was principally due to net inflows and market appreciation across the segment and the April 1, 2010 acquisition of $3.5 billion in Fee-Earning Assets Under Management from Allied Capital’s Callidus unit.
As of December 31, 2010, 76% of the Fee-Earnings Assets Under Management in Blackstone’s funds of hedge funds which were eligible to earn performance fees were above their respective high water marks. As of December 31, 2010, 96% of the Fee-Earning Assets Under Management in Blackstone’s credit-oriented special situations hedge funds which were eligible to earn performance fees were above their respective high water marks.
Dry powder for CAMA was $4.5 billion as of December 31, 2010. Limited Partner Capital Invested in certain carry credit-oriented funds during the full year 2010 totaled $1.4 billion, up from $721.4 million for the full year 2009.
In January 2011, Blackstone separated its CAMA segment into two new segments: Hedge Fund Solutions and Credit Businesses. The Hedge Fund Solutions segment primarily manages funds of hedge funds and the Credit Businesses segment, which includes GSO Capital Partners, manages credit-oriented funds, collateralized loan obligation (“CLO”) and collateralized debt obligation (“CDO”) vehicles and debt-focused closed-end mutual funds. Blackstone will provide segment results under this structure commencing in the first quarter of 2011. Please see Exhibit 7 for selected financial information presented under this revised reporting structure.
Revenues were $431.9 million for the full year 2010, an increase from $397.6 million for the full year 2009. The increase in segment revenues was primarily driven by a nearly 300% increase in the fees earned by Blackstone’s fund placement businesses, which reflected the improving fundraising environment. Blackstone’s financial and strategic advisory business revenues increased, in a continuing difficult environment for transactions, up 5% in 2010. These increases were partially offset by a decrease in fees from Blackstone’s restructuring and reorganization business from the record year in 2009, but was still strong enough to be the second best year ever for this business.
ENI was $83.7 million for the full year 2010 compared to $85.7 million for the full year 2009 reflecting the cyclically balanced attributes of the segment.
CAPITAL AND LIQUIDITY
As of December 31, 2010, Blackstone had $588.6 million in cash, $1.1 billion invested in Blackstone’s Treasury cash management strategies, $285.2 million invested in liquid Blackstone funds and $1.6 billion invested in illiquid Blackstone funds. Long-term debt totaled $1 billion in borrowings from the 2010 and 2009 bond issuances. Blackstone has no borrowings outstanding against its $1 billion revolving credit facility.
The Blackstone Group L.P. has declared a quarterly distribution of $0.32 per common unit to record holders of common units at the close of business on March 15, 2011. This distribution will be paid on March 31, 2011.
For distributions related to fiscal 2010 and thereafter, Blackstone’s current intention is to distribute to its common unitholders substantially all of The Blackstone Group L.P.’s net after-tax share of its annual Distributable Earnings in excess of amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future distributions to its unitholders for any ensuing quarter. Because Blackstone will not know what its Distributable Earnings will be for any fiscal year until the end of such year, Blackstone expects that its first three quarterly distributions in respect of any given year will be based on its anticipated annualized Net Fee Related Earnings. As such, the distributions for the first three quarters are expected to be smaller than the final quarterly distribution in respect of such year. For the fourth quarter of 2010 Blackstone will distribute the remaining Distributable Earnings for the year, which is expected to also include realized Performance Fees net of related compensation and realized net investment income.
In most years the aggregate amounts of Blackstone’s distributions to unitholders will not equal its Distributable Earnings for that year. Distributable Earnings will only be a starting point for the determination of the amount to be distributed to unitholders because as noted above, in determining the amount to be distributed Blackstone will subtract from Distributable Earnings any amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its business, to make appropriate investments in its business and funds, to comply with applicable law, any of its debt instruments or other agreements, or to provide for future distributions to its unitholders for any ensuing quarter.
All of the foregoing is subject to the qualification that the declaration and payment of any distributions are at the sole discretion of Blackstone’s general partner and the general partner may change its distribution policy at any time.
Because the wholly-owned subsidiaries of The Blackstone Group L.P. must pay taxes and make payments under the tax receivable agreements described in Blackstone’s Annual Report on Form 10-K, the amounts ultimately distributed by The Blackstone Group L.P. to its common unitholders in respect of fiscal 2010 and subsequent years are expected to be different, on a per unit basis, than the amounts distributed by the Blackstone Holdings partnerships to the Blackstone personnel and others who are limited partners of the Blackstone Holdings partnerships in respect of their Blackstone Holdings partnership units.
Blackstone will host a conference call on February 3, 2011 at 11:00 a.m. ET to discuss 2010 results. The conference call can be accessed by dialing (877) 391-6747 (U.S. domestic) or +1 (617) 597-9291 (international) pass code 14994355. Additionally, the conference call will be broadcast live over the internet and can be accessed by all interested parties through the Investor Relations section of The Blackstone Group’s website http://ir.blackstone.com. For those unable to listen to the live broadcast, a replay will be available on Blackstone’s website or by dialing (888) 286-8010 (U.S. domestic) or +1 (617) 801-6888 (international) conference ID number 26557432, beginning approximately two hours after the event. Blackstone will also post a short video of Blackstone Chairman, CEO and Co-Founder, Steve Schwarzman, conveying the highlights of the 2010 results on February 3, 2011 at 12:30 p.m. ET in the News & Views section of The Blackstone Group’s website http://www.blackstone.com/cps/rde/xchg/bxcom/hs/newsandviews.htm.
Blackstone expects to host conference calls to report its 2011 results as follows: first quarter results, April 21, 2011; second quarter results, July 21, 2011; third quarter results, October 20, 2011 and fourth quarter and full year results, February 2, 2012.
About The Blackstone Group
Blackstone is one of the world’s leading investment and advisory firms. We seek to create positive economic impact and long-term value for our investors, the companies we invest in, the companies we advise and the broader global economy. We do this through the commitment of our extraordinary people and flexible capital. Our alternative asset management businesses include the management of private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds. The Blackstone Group also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. Further information is available at www.blackstone.com.
This release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect Blackstone’s current views with respect to, among other things, Blackstone’s operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Blackstone believes these factors include but are not limited to those described under the section entitled “Risk Factors” in its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as such factors may be updated from time to time in its periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in the filings. Blackstone undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.