Listed Firms See Sharp Earnings Rebound In 3Q

Blackstone Group, the largest of the six firms by assets managed, posted economic net income of $622 million, the “best third-quarter since going public” in 2007, said the firm’s earnings release. That substantially beat analysts’ expectations and reversed 2011’s third-quarter loss of $380 million. The industry often prefers economic net income (ENI) as its earnings yardstick because the measurement factors in the unrealized gains from a firm’s investments. 

Blackstone Group, which was founded in 1985 by Stephen Schwarzman and Peter Peterson, now has $205 billion in assets under management, compared to $158 billion one year ago, a rise of 30 percent. Fee-earning assets under management were $169 billion compared to $133 billion, a 27 percent gain.

The overall value of Blackstone Group’s private equity portfolio, roughly a quarter of the firm’s total assets, rose by 17 percent to $50.2 billion including new commitments, said the firm, while its real estate portfolio increased by 32 percent to $53.5 billion, compared to the end of the third quarter last year. During the quarter, the firm’s real estate group closed on the largest real estate fund in history, the $13.3 billion Blackstone Real Estate Partners VII LP. Collectively, the firm had $36 billion in ‘dry powder,’ or un-invested commitments.

Carlyle Group, the second largest firm by assets managed, produced $219 million in ENI, compared to a loss of $191 million in the third-quarter of 2011, which was before the firm went public earlier this year. 

So far this year, the firm has been on a fundraising tear, receiving commitments of $9.4 billion through the third quarter, 40 percent more than the firm raised in all 2011. Earlier this year, the firm started raising its new flagship fund, Carlyle Partners VI LP, for which it is targeting $10 billion.

In a statement, David Rubenstein, who co-founded Carlyle in 1987, said: “Every component of the Carlyle engine is running strong. Third quarter fund-raising was solid, our investment pace was active, portfolio valuations were up and we generated substantial cash returns for our fund investors.”

Overall, Carlyle Group managed $157 billion, a 6 percent increase from the $148 billion it managed at this point last year. Fee-earning assets rose 2 percent to $115 billion in the third quarter of 2012 from $113 billion at this point in 2011. Roughly $53 billion of that amount consisted of direct private equity investments. The firm has more dry powder—$39 billion—than any other listed private equity firm.  

Apollo also participated in the earnings turnaround. The firm, which went public in 2011, posted better than expected third-quarter ENI of $434 million, compared to a painful third quarter last year, when it lost $1.16 billion.

The firm, founded by Leon Black in 1990, had $110 billion under management at the end of the third quarter. The firm is heavily geared heavily toward credit strategies, which made up $60 billion or 55 percent of the firm’s overall managed assets. Nevertheless, Buyouts reported that the firm’s newest flagship buyout fund, Apollo Fund VIII LP, would be seeking as much as $12 billion.

Overall, the firm had $7.1 billion in dry powder, much less than rivals Carlyle Group and Blackstone Group.

Oaktree, the world’s largest distressed debt investor, also performed well, swinging to third-quarter ENI of $368 million compared to a loss of $443 million in the third quarter of 2011. The firm, which went public earlier this year and is led by Howard Marks, managed $81 billion in assets, slightly more than the $79 billion that the firm managed at this point in 2011.

During the third quarter, the firm closed on its latest flagship fund, Oaktree Opportunities Fund IX LP, above target with more than $5 billion in commitments from such notable investors as the Washington State Investment Board, the Illinois Teachers’ Retirement System and the Massachusetts Pension Reserves Investment Management Board. The fund has been active in distressed debt opportunities in battered European economies.

KKR also was able to push up earnings in the third quarter. The firm—which was founded in 1976 by Henry Kravis, Jerome Kohlberg and George Roberts—saw third quarter ENI reach $510 million, exceeding analyst expectations. That compares to an ENI loss of $592 million in the third quarter of 2011.

The firm, which is known for investing in such recognizable companies as Toys ‘R’ Us and HCA, the hospital chain, had $66 billion in assets under management at the end of the third quarter, which is 8 percent more than the $61.5 billion in assets that the firm managed in 2011.

The firm has continued to struggle to raise its latest flagship fund, KKR North American Fund XI LP, which it began raising more than a year and a half ago. So far the fund has raised just north of $6 billion, shy of its original $8 billion to $10 billion target. 

Lastly, Fortress, the smallest of the publicly listed private equity rooted firms, saw pretax distributable earnings rise to $64 million, up 49 percent from the $43 million that the firm reported in the third quarter one year ago.

Fortress reports pretax distributable earnings, which it claims is the best method for measuring its performance due to the large compensation costs that are attributable to the equity interests of the founders who took the firm public in 2007. Measured that way, Fortress was the only firm to remain profitable on a year-over-year basis in the third quarter of 2012 compared to the same quarter in 2011.

Overall, the Fortress’s assets rose 7 percent to $51.5 billion at the end of the third quarter, compared to $48 billion on year ago.