Blackstone Fund Written Down 35 Percent: Source

The Blackstone Group wrote down the value of its Buyout Fund V by 35 percent for 2008, according to a source who has seen a letter it sent to investors.

The New York-based LBO stalwart reported a fourth-quarter loss of $827.1 million on Friday and said it wrote down the value of its private equity portfolio by 20 percent for the quarter.

The company later on Friday sent a letter to investors in its funds detailing the performances of the individual funds, the source, said. The source requested anonymity because the letter is confidential.

Blackstone declined to comment on the letter.

According to the source, the letter detailed the write-downs and write-ups on five private equity funds. In aggregate, the funds were written down 31 percent for the year and 20 percent for the quarter.

That is less of a fall than the broad market. For the year, the Dow Jones Industrial Average fell 33.8 percent and the Standard & Poor’s 500 Index dropped 38.5 percent.

The funds are: Blackstone Fund V, a $21.7 billion fund it finished raising in August 2007; Fund IV, raised in 2002, with $6.45 billion; Fund III, a $4 billion fund raised in 1997; and Fund II. It also detailed a communications and media fund.

Blackstone V was written down 35 percent, said the source. Fund V has investments including Nielsen Co., Michaels Stores, Biomet, Freescale Semiconductor, Hilton Hotels and Center Parcs, according to a press release issued by Blackstone at the time the fund finished raising money.

Blackstone IV was written down 20 percent; Blackstone III was written down 17 percent, and the oldest of the five funds, Blackstone II, was written up by 2 percent, the source said. The communications and media fund was written down 48 percent, the source said.

Private equity firms are obliged to value their companies as if they were to sell them today, rather than years in the future when they may be sold. The accounting rule known as FAS 157 came into effect for financial years beginning after Nov. 15, 2007.

Another publicly-traded buyout firm KKR Private Equity Investors, which has investments in a number of Kohlberg Kravis Roberts & Co’s funds, announced its fourth-quarter results on Monday, showing a sharp fall in the reported value of its investments.

It was unclear the exact methodology Blackstone used for the write-downs.

Blackstone is currently raising its sixth buyout fund, which it said on Friday it expects to start investing in late 2009 or early 2010.