Blackstone touts AUM growth as earnings drop

Steve Schwarzman attributed negative ENI to unrealized losses in the public markets, while highlighting record AUM growth of $97 billion across the firm and $7.7 billion at GSO over the past year.  

The Blackstone Group posted economic net income (ENI) of minus $416 million or -$0.35 cents per share for the third quarter “driven by declines in the unrealized value of public holdings, despite strong underlying portfolio fundamentals across the funds”.

In tandem, the firm announced a record $97 billion in new assets gathered over the past year, of which $7.7 billion was collected at the credit arm, including money toward two new energy credit funds, a European senior lending fund and credit alpha strategies.

Blackstone chairman Steve Schwarzman assured analysts on the firm’s earnings call yesterday (15 October) that he doesn’t expect equity market volatility to have long-term effects on the firm’s performance, as most of Blackstone’s assets are in long-term private funds that don’t require forced selling. “Importantly, these declines historically have been temporary. With locked in capital in our drawdown funds, we are never sellers and can ride out any period of volatility,” he said. “We don’t have to sell at the wrong time and while our sustained weakness in public markets might delay certain dispositions in the near-term, the public markets alone do not dictate realizations.”

Performance on the firm’s credit funds, which had posted strong returns in prior quarters, also abated on the back of declines in public markets. GSO’s mezzanine strategies lost 3.2 percent in the third quarter but were up 6.1 percent year-to-date through 30 September. The rescue lending strategies lost 6.3 percent in the quarter and were down 0.7 percent year-to-date. Though Schwarzman noted he sees increasing opportunities for the credit business going forward. “For GSO, the recent increase in spreads combined with the lack of liquidity in high-yield generally, means greater opportunity to deploy our $17 billion in dry powder, which includes new dedicated energy and direct lending funds,” Schwarzman said.

Chief financial officer Michael Chae added that although GSO has raised large chunks of money in energy, the firm has been careful about timing deployment. “I think we showed a great discipline by not deploying capital in that first half of the year, where it turned out there was a bit of the false dawn in the sector. Between the two [energy funds], they stand with a combined $7.5 billion-$8 billion of new dry powder just facing those opportunity sets,” he added. Many debt managers, including those raising large energy funds, have echoed that sentiment lately, that while a lot of opportunity is anticipated within energy, the time is not ripe for investment yet.

GSO’s fee revenues in the quarter were $116 million: a 3 percent year-on-year rise. The credit segment also launched 10 CLOs (six US and four European), raising $5.5 billion of capital. This included a $618 million US CLO in the first quarter. GSO deployed $432 million in the quarter and committed another $1.5 billion across its drawdown funds. It saw $1.1 billion in realizations across these funds in Q3.

Assets under manager at GSO rose by 15 percent, whole at the whole firm, AUM increased by 17 percent over the last 12 months to a record $334 billion.