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Blackstone’s Hedge Fund Solutions Thrived on Downside Protection

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Relative outperformance

Blackstone (BX) reported a 6% fall in its hedge fund solutions segment’s total 4Q15 revenue to $132 million—compared to $140 million in 4Q14. The economic income for hedge fund solutions also fell by 36% during the fourth quarter. It fell mainly due to difficult global markets.

Blackstone’s hedge fund solutions segment is mainly composed of BAAM (Blackstone Alternative Asset Management). It was organized in 1990. It 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 rose by 0.4% during the quarter and by 2.9% year-to-date. It outperformed the hedge fund indices and global markets with less volatility. Blackstone attracted a sizable amount of funds in customized and commingled strategies. The company attracted $2.0 billion in fee-earning gross inflows during the quarter. It attracted $9.7 billion during the last 12 months.

Also, the division’s total assets under management increased by 9% to $69 billion due to growth of customized strategies and continued platform diversification. The total assets under management for BAAM’s individual investor solutions platform reached $7.0 billion—up from $3.2 billion as of 4Q14. The company raised $655 million for BAAM’s third seeding vehicle.

Blackstone’s operating margin was 48% in the last fiscal year. Let’s compare this to the revenue 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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