The alternative asset management industry saw weak operating performance in 2015 due to declining equities and asset classes. Blackstone (BX) reported economic income of $436 million for 4Q15. The company’s earnings improved from the quarterly loss in 3Q15. However, the strength it saw in the first quarter was missing. The company’s distributable earnings were $878 million, or $0.72 per unit, in 4Q15, down 23% from the same period last year. The realized performance fees stood at $708 billion in 4Q15.
Blackstone’s stock has risen 11% over the past one month. However, the stock has declined 28% over the past one year. The rise has been mainly due to a rebound in commodities and thus in the financial markets. The company had its best quarter in 1Q15. Blackstone’s valuation rose to 11.4x on a one-year forward earnings basis compared to its peers trading at 13x. The stock started trading at a discount due to a rebound in other alternatives.
Blackstone’s focus on the performance of its portfolio companies and constant offerings to its network of limited partners could remain important factors in the company’s future performance.
Diversification through offerings such as hedge funds, credit, and advisory could lower Blackstone investors’ general risk perception, and debt markets should generate returns in the range of 4%–5%. If equity attractiveness rises, the overall perception of alternative asset managers should too, especially for the bigger players that are part of the iShares Dow Jones US Financial ETF (IYF).
From our perspective, Blackstone has likely seen the bottom in terms of value for its portfolio holdings. The company could benefit from record dry powder (or undrawn capital), improvement in European equity and debt markets, as well as domestic equity markets.