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Blackstone, KKR Earnings Head In Opposite Directions

It was a schizophrenic second quarter for publicly listed private equity firms, as Apollo Global Management and The Blackstone Group posted sharply higher earnings, while Kohlberg Kravis Roberts & Co. and Fortress Investment Group posted shrinking results that also missed analyst predictions.

Apollo, a private equity firm that went public earlier this year, posted sharply higher results in the second quarter. Economic net income, the income measurement preferred by private equity firms and analysts, rose 508 percent to $140 million, compared to the $23 million that it registered in the second quarter of 2010.

While the results matched Wall Street expectations, the stock price has slumped more than 30 percent since the firm went public in late March at $19 a share. Apollo shares were trading on August 9th at just above $13 a share. Apollo benefited from the sale of its stake in Hughes Communications, the satellite communications company, to EchoStar, the company that operates the Dish satellite TV platform.

Assets under management at Apollo also gained, rising 31 percent to $72 billion as compared to $55 billion at the end of the second quarter in 2010.

As Buyouts reported earlier, Blackstone Group the largest publicly listed private equity firm, posted economic net income more than triple what it was during the same period last year. ENI at Blackstone rose to $703 million in the second quarter, compared to $205 million in the second quarter of 2010, exceeding analysts’ expectations.

Nevertheless, the firm was hard hit by the early August market turmoil, with the firm losing as much as 27 percent of its value from Aug. 1 to Aug. 8. On Aug. 9, the firm was trading at about $13, far below its April peak of $19.49 a share.

Assets under management at Blackstone also rose sharply, climbing to $159 billion at the end of the second quarter, up 43 percent from the $111 billion that the company had under management one year ago.

Blackstone had $17 billion in dry powder in its private equity funds, and the firm just finished raising its newest fund, Blackstone Capital Partners VI, which raised about $16 billion.

The firm’s president, Tony James, attributed the strong results in part to its real estate portfolio. “The star performer in the quarter was real estate,” James said in a conference call covered by sister news service Reuters. “Purchasing assets from distressed sellers has been the dominant focus of our real estate activities over the last year.”

Failing to meet expectations, Fortress posted pretax distributable earnings of $46 million that fell 37 percent compared to the $73 million the company reported in the second quarter of 2010. Even though the private equity and hedge fund manager announced plans to reinstate a dividend that had been suspended for three years, investors seemed more concerned with the firm’s lackluster earnings. Shares of the firm were trading at around $3.50 on Aug. 9, down nearly 50 percent from their $6.77 peak on Feb. 16.

One of the few bright spots for Fortress was assets under management, which rose 5 percent to $43.8 billion versus the same period a year ago.

Rounding out earnings among publicly traded private equity firms, KKR posted economic net income of $315 million, a drop of 27 percent from the second quarter of 2010, when the company posted ENI of $433 million. The results fell short of analysts’ expectations and helped send shares of the firm down as much as 20 percent during the first week of August. On Aug. 9, shares in KKR were trading at $7.75, down about 25 percent from their Feb. 11 peak of $10.55.

As with Fortress, the one positive note for KKR has been assets under management, which rose 14 percent to $61.9 billion from $54.4 billion at the end of June of 2010.

The firm is currently trying to raise its latest mega-fund, the KKR North American XI Fund, which has a target of $8 billion to $10 billion.