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Blackstone’s Hedge Funds Rebound on Commingled, Individual Strategies

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Commingled strategies

The Blackstone Group’s (BX) hedge fund solutions have seen a rebound in the performance of the Hedge Fund division. This improvement was backed mainly by the success of commingled strategies, rising broad market strategies, and long-term strategies. The division mainly consists of Blackstone Alternative Asset Management (or BAAM).

In 2017, the segment’s major drivers can be fundraising through multiple strategies, index performance, high volatility, and deployments. Blackstone saw a 35% rise year-over-year (or YoY) in its total revenues to $179.1 million in 4Q16 compared to $132.3 million in 4Q15.

Hedge fund

Blackstone’s hedge funds managed economic net income (or ENI) of $102.1 million, compared to $75.0 million in 4Q15, reflecting higher performance and investment income. The company garnered an operating margin of 49% in 2016. In comparison, its competitors posted the following numbers:

  • BlackRock (BLK): 41.0%
  • Apollo Global Management (APO): 40.8%
  • Carlyle Group (CG): 1.5%

Together, these companies account for 1.6% of the Financial Select Sector SPDR ETF (XLF).

Volatility, index driving growth

Blackstone’s (BX) hedge funds generated 2.3% growth in its portfolio in 4Q16, as well as 6.7% growth over the past three quarters after its weak performance in 1Q16. In 2017, the division is expected to garner higher growth on volatility, broad index growth, individual investor strategies, and commingled products. The company received new flows of $3.2 billion in 4Q16 and $10.8 billion in 2016.

On December 31, 2016, Blackstone managed $71.1 billion in hedge fund solutions, a rise of 3% from the same period in 2015. Of these funds, $67.0 billion were deployed toward fee-earning strategies, which can provide higher performance fees in 2017. It also reflects progress toward individual investor solutions, under which it is managing $7 billion.

In the next article, we’ll see how Blackstone’s Credit division is shaping up for 2017.

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