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Behind Blackstone’s Hedge Fund Solutions Division

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Why total revenues rose

The Blackstone Group’s (BX) hedge fund solutions division generated total revenue of $573.3 million in the first nine months of 2017, compared to $426.6 million in the first nine months of 2016. This rise reflected favorable momentum in the division’s investment income and performance fees.

The hedge fund solutions division’s performance fees rose $114.7 million YoY (year-over-year) in the first three quarters of 2017, implying a rise in the returns of BPS Composite. The division’s investment income rose $40.7 million YoY in the first three quarters of 2017, mainly aided by investment appreciation.

On a trailing-12-month basis, while Blackstone reported a return on invested capital of 13.8%, its peers (XLF) Brookfield Asset Management (BAM), CBRE Group (CBG), and Greenhill & Co. (GHL) reported returns on invested capital of 3.8%, 11.9%, and 6.8%, respectively.

Total expenses

BX’s hedge fund solutions division incurred total expenses of $274.2 million in the first three quarters of 2017, compared to $236.8 million in the first three quarters of 2016, reflecting a rise in its performance fee compensation due to favorable momentum in its performance fee revenue. However, the division saw a fall in compensation expenses to $139.3 million in the first nine months of 2017 from $145.8 million in the first nine months of 2016, marking a 4% decline.

The hedge fund solutions division generated economic income of $299.1 million in the first three quarters of 2017, compared to the $189.8 million it generated in the same period of 2016, reflecting a 58% rise.

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