Blackstone in the red again

Blackstone Group reported a US$251m loss for the first quarter compared with US$1.13bn a year ago – a 122% drop, reflecting the weakened debt and equity markets that also contributed to the firm’s negative US$170m fourth-quarter 2007 income.

Stephen Schwarzman, CEO, described the market environment as “one of the worst financial crises since the Great Depression.”

Total revenues were US$68.5m for the first quarter, down 94.4% from US$1.23bn in the same period last year. Assets under management grew to US$113.5bn from US$83.1bn a year earlier. It was tough going for all four segments – corporate private equity, real estate, marketable alternative asset management and financial advisory.

Private equity reported negative revenues of US$116.7m compared with a positive result of US$208.9m last year. That was due to a reduction in performance fees, allocations and investment income losses, related to a decrease in the carrying value of managed funds.

Despite decreasing valuations all round, most of the decline in the firm’s private equity revenues was attributed to public equity, specifically Blackstone’s investment in Deutsche Telekom.

The firm invested US$340m in private equity in the quarter. It also closed four CLOs year to date – Tony James, president and COO, said this was nearly 25% of the whole CLO market.

Revenues from real estate fell 94% to US$47m compared with the same period a year ago, when revenues reached US$766.8m. Alternative asset management revenues fell 81% to US$30m. Financial advisory decreased 24% with revenues of US$71.2m in the first quarter.

The firm was optimistic, however. “Blackstone has navigated through several down cycles, and in the period soon after the down cycles… we made our very best investments,” Schwarzman said.

Blackstone has already tried to take advantage of the down cycle, recently investing about US$6bn in bank loans and debt from banks. James shed some light on the sometimes opaque process whereby private equity firms have been understood to be “doubling down” by purchasing the debt of their portfolio companies at deep discounts.

“Generally speaking,” he said, “if we have a portfolio company that wants to capitalise on repurchasing its own debt we do that through the portfolio company itself. It buys its own debt.” He added, though, that there were two portfolio companies in which the firm had both equity and debt positions.