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Blackstone’s Hedge Funds Show Resilience in Weak Markets

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Lower performance fees

Blackstone (BX) reported a 38% fall in its hedge fund solutions segment’s total 3Q15 revenues to $98 million as compared to $158 million in 3Q14. Economic income for hedge fund solutions also fell by 52% during the third quarter mainly due to difficult global markets.

Blackstone’s hedge fund solution is composed primarily of Blackstone Alternative Asset Management, or BAAM, which was organized in 1990 and manages a broad range of commingled funds of hedge funds and customized vehicles.

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Returns and inflows

The division’s composite gross return fell by 0.9% during the quarter and by 2.8% year-to-date, outperforming global markets with less volatility. Blackstone has attracted a sizable amount of funds in customized and commingled strategies. The company attracted $2.2 billion in fee-earning gross inflows during the quarter and $9.5 billion during the last 12 months.

Also, the division’s total assets under management increased by 7% to $68 billion on the growth of customized strategies and continued diversification of the platform. Total assets under management for BAAM’s individual investor solutions platform reached $5.8 billion, up from $2.7 billion as of July 1, 2014. The company raised $655 million for BAAM’s third seeding vehicle.

BAAM also achieved final closing for its first commitment capital vehicle by acquiring general partner interest in hedge funds, bringing total commitments to $3.3 billion.

Blackstone’s operating margin was 48% in the last fiscal year. Let’s compare this to revenues for Blackstone’s peers:

  • The Carlyle Group (CG) posted an operating margin of 2.7%
  • KKR & Co. (KKR) posted an operating loss
  • BlackRock (BLK) posted an operating margin of 40.4%
  • Apollo Global Management (APO) posted an operating margin of 34.0%

Together, these companies form ~1.4% of the Financial Select Sector SPDR Fund (XLF).

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