Performance above index
Blackstone Group (BX) saw strong growth following the economic meltdown in 2007. The company has expanded its revenues at a CAGR (compound annual growth rate) of 33% backed by strong growth in assets under management and the operational performance of its holding companies.
The company’s two main divisions—private equity and real estate—have outperformed returns from the S&P 500 Index (SPY) by 4% to 8% in the past few years.
Outperformance translates into higher performance fees for Blackstone’s holdings. This can be seen from the 44% CAGR in economic income, which is higher than the total revenue CAGR. Distributable earnings include the net realized fees and total management fees. Economic net income combines distributable earnings and unrealized fees.
Blackstone is moderately leveraged, with a debt-to-equity ratio of 0.76x compared to an industry average of 0.83x. The company has attracted the majority of its limited partners through the equity route, and so is seeing less leverage than other players including Carlyle Group (CG), Apollo Global Management (APO), or other traditional asset managers that form part of the Financial Select Sector SPDR Fund (XLF).
Blackstone is also comfortably placed when reviewed from the perspective of the net-debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio. The company’s multiple has been in the range of 1.5x to 2.5x over the past few years.
Higher returns over equity
Blackstone has witnessed some of the fastest bottom-line growth in the industry. The scale and performance of the company supports this growth. In exchange, equity holders enjoy higher returns and higher dividend payouts. Blackstone has generated a return on equity of 22% to 27% over the past five years, which is 30% to 50% higher than the industry average of 19% over the same period. The company has also maintained operating and net-profit margins.