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Blackstone, the world's biggest alternative asset manager, posted stronger-than-expected third-quarter earnings on Thursday as its real estate, private equity and credit investments posted sharp turnarounds.
The buoyant results resonated with the performance of some of Blackstone's peers, underlining the importance of rebounding oil prices and a steady U.S. stock market in shoring up investment returns.
Performances across all of Blackstone's main businesses — buyouts, real estate, hedge funds and credit — improved markedly compared with year ago, when a plunging U.S. stock market pushed investments into the red.
But unlike other traditional asset managers who are often compelled to sell investments even as they head south, buyout firms such as Blackstone can hang on their holdings for up to 10 years and sell only when markets recover. As such, losses incurred by private equity firms are sometimes only on paper.
Blackstone said it earned an economic net income — a key earnings metric for U.S. private equity firms that accounts for unrealized investment gains or losses — of $687 million after taxes between July and September, compared with a loss of $416 million a year earlier.
That translated to an economic net income of 57 cents per share. Analysts had expected Blackstone to post earnings of 48 cents, according to Thomson Reuters I/B/E/S.
Returns from real estate, the largest of Blackstone's business arms, boomed. Performance fees, earned by Blackstone when it generates returns in excess of a level agreed upon with clients, jumped nearly seven times to $366.8 million from a year ago.
A sustained appreciation in energy investments also helped to push Blackstone's credit investments into the black after chalking up losses a year ago.
Yet despite robust investment gains, Blackstone generated less cash in the quarter. Distributable earnings, which are used to fund dividends, fell 14 percent to $593 million from a year ago.
The New York-based firm, which managed $361 billion at the end of September, said it will pay a dividend of 41 cents in the third quarter.