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Will Blackstone’s Hedge Funds Deliver Weak Numbers?

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Difficult global markets

Blackstone’s (BX) hedge fund solutions segment is mainly composed of BAAM (the Blackstone Alternative Asset Management). Organized in 1990, it manages a broad range of commingled funds. The division reported a 36% fall in its hedge fund solutions segment’s total 1Q16 revenue, to $117 million from $185 million in 1Q15. The economic income for hedge fund solutions fell 59% during the first quarter, mainly due to difficult global markets. In 2Q, Hedge funds continue to see weak performance on declining spreads and lower profitability.

Hedge funds

Blackstone also launched its hedge fund platform, Senfina Advisors, in the United Kingdom. The platform allows investors to access a number of underlying hedge fund managers. Senfina launched in the United States in 2014.

Blackstone’s operating margin was 48% in the last fiscal year. Let’s compare this result with the revenue for Blackstone’s peers.

  • The Carlyle Group (CG): operating margin of 2.7%
  • KKR (KKR): operating loss
  • BlackRock (BLK): operating margin of 40.4%
  • Apollo Global Management (APO): operating margin of 34.0%

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

Buying at distressed prices

The division’s composite gross return fell 2.9% during the quarter due to difficult market conditions. Blackstone attracted considerable funds in customized and commingled strategies. The company attracted $2.9 billion in fee-earning gross inflows during the quarter. It has attracted $9.4 billion during the last 12 months.

Also, due to the growth of customized strategies and continued platform diversification, the division’s total assets under management rose 3% to $68 billion. The total assets under management for BAAM’s individual investor solutions platform reached $6.8 billion, up from $3.8 billion in 1Q15.

Next, we’ll look at how Blackstone sees investments and capital commitments in credit.

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