February 1, 2018 / 4:35 PM / a year ago

Breakingviews - Blackstone diversifies over time as well as space

Stephen Schwarzman, Chairman, CEO and Co-Founder of Blackstone, speaks during the Milken Institute Global Conference in Beverly Hills, California, U.S., May 2, 2017. REUTERS/Lucy Nicholson

NEW YORK (Reuters Breakingviews) - Blackstone is proving it knows more and more ways to make money. A surge in fee-related earnings helped the manager of $434 billion in alternative assets top expectations in the fourth quarter of 2017. With longer-term funds increasingly smoothing out the lumpiness of buyout gains, the outfit’s stock might start to get more love from investors.

This week’s $20 billion deal to take control of a big business unit from Breakingviews parent Thomson Reuters is a reminder of Blackstone’s buyout roots. But the firm has long since diversified into other areas including real estate, credit and hedge funds. As it attracts more capital from investors amenable to longer lock-ups, Blackstone increasingly invests for more than the traditional seven-to-10-year life of a buyout fund. Such vehicles now account for 15 percent of its business.

In real estate, for example, assets in one longer-term strategy launched four years ago almost doubled in 2017 to $27 billion – about a quarter of all the firm’s property investments. Meanwhile more than a third of the group’s whopping $62 billion in asset inflows in the latest quarter came via Fidelity & Guaranty Life, an annuity provider Blackstone and its partners acquired in November, another long-term business. Even in buyouts, Blackstone last year raised $5 billion for a fund that aims to hold companies for twice the normal length of a private-equity investment.

Overall, though, buyout holdings now represent less than a quarter of the group’s assets after growing by a modest 5 percent last year. Leveraged acquisitions may grab the headlines, but real estate and credit increasingly drive the firm’s growth.

Along with the longer-dated funds, that’s helping produce the kind of steady income flows that investors cherish. Fee-related earnings rose 11 percent in the latest quarter, to $328 million. That may explain why the group’s long-lagging partnership units were up 2 percent soon after the start of New York trading.

Stephen Schwarzman’s shop still has $95 billion in capital available to invest – so-called dry powder. And that doesn’t include the infrastructure fund Blackstone aims to launch this year, which is backed with $20 billion of Saudi money. That means plenty more fuel to expand his deal-and-fee machine over time as well as space.


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