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What to Expect of Blackstone’s Private Equity Performance in 4Q16

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Rebound in private equity

The Blackstone Group (BX) has seen marginal improvement over the past three quarters in the performance of its Private Equity division, backed by increased performance fees reflecting better-than-index (IVV) performance. In 4Q16, the division’s performance is expected to be strong as valuations of its holdings across the sectors improve, which would be reflected in higher performance fees.

In 3Q16, Blackstone’s PE division posted economic income of $132.1 million against total revenues of $337 million. The division’s performance income stood at $171 million compared to -$595 million in 3Q15. The valuation of its portfolio rose 3.0% over the previous quarter, mainly due to growth in the private investment portfolio.

Blackstone (BX) managed $100 billion in its PE division on September 30, 2016. It is expected to see more flows in 4Q16 as investors deploy more funds toward improving equities and the broad economy.

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In 3Q16, Blackstone brought in 9% more assets on a year-over-year basis backed by valuations and new flows, which were partially offset by realization and distribution. During the same period, the division’s fee earnings assets expanded 37% to $69 billion, helped by the initiation of investment periods of various flagship funds.

In 4Q16, Blackstone’s major holding, Hilton Worldwide (HLT), rose 18%. NXP Semiconductors (NXPI) fell 3.9%, Zimmer Biomet (ZBH) fell 20.6%, and Brixmor Property Group (BRX) fell 12%. The Michaels Companies (MIK) fell 15.4%.

Deployments yielding

Blackstone (BX) has raised $18.9 billion over the past year toward its first core private equity fund and its seventh secondary fund. The trend is expected to continue in 4Q16 as institutional investors seek alternative funds for superior returns.

The company realized $4.5 billion in 4Q16, reflecting improved liquidity and profit-booking opportunities. Investors prefer higher returns and higher churning portfolios. The new flows and aggressive deployment amid low valuations has helped the company command premium returns in recent quarters.

For 4Q16, investments are expected to be marginally subdued as valuations have risen substantially on the back of strong buying. Blackstone has stronger dry powder, or uninvested capital, than its peers such as the Carlyle Group (CG) and KKR (KKR).

Next, let’s see how Blackstone is expected to perform in real estate.

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