The New York private equity firm sold $ 7.2 billion in real estate assets in the third quarter. Investors poured $ 68.5 billion into its funds in the first nine months of the year, pushing Blackstone’s assets under management to a record $ 361 billion. The firm has more than $ 100 billion available to spend on new investments.
Yet Blackstone’s shares have fallen 26% over the past 12 months, slicing $ 5.6 billion off the company’s market value. The stock fell four cents, or 0.2%, to close at $ 25.34 Thursday after Blackstone reported it swung to a third-quarter profit from a year-earlier loss.
The gulf between performance and share price has vexed the firm and its publicly listed rivals, such as Carlyle and KKR. The firms have grown in scale, expanded beyond their leveraged buyout roots and taken share from heavily regulated Wall Street banks and hedge funds, among other financial industry players. But their stocks have lagged behind the financial services industry and the stock market broadly.
“I look forward to the day when public markets catch up to our limited partners with respect to Blackstone’s stock, and afford us a premium value, the same way [investors] put a premium on our funds,” Blackstone chief executive Stephen Schwarzman said on a conference call with analysts Thursday. Schwarzman, who co-founded Blackstone in 1985, also is the firm’s largest shareholder.
Blackstone executives argue that the firm’s expansion into credit and other assets over the years offers it a steady stream of management fees, and that there is more to private equity investing than buying at the right time in the cycle. Blackstone has made three times its money on Hilton Worldwide Holdings Inc., which it bought in 2007 before the markets tumbled, Schwarzman said. The firm on Monday announced a $ 6.5 billion deal to sell a 25% stake in the hotelier to Chinese conglomerate HNA Group.
But public investors aren’t convinced private equity firms can keep up the pace of sales to produce the hefty returns that their fund investors have come to expect.
Blackstone’s distributable earnings, cash profits available to be paid out to shareholders, have fallen from their high point early last year. For the third quarter, Blackstone will pay a dividend of 41 cents, compared with a record 89-cent dividend for the first quarter of 2015.
The stocks also suffer from some technical disadvantages. Private equity firms’ shares are excluded from US stock indexes run by S&P Dow Jones Indices or Russell Investments, which means index-tracking mutual funds and exchange-traded funds don’t buy them. And Blackstone and its peers are organised as partnerships, which offer their shareholders tax benefits but involves administrative complexity that many hedge funds and individuals would rather avoid.
Investors’ interest in private equity stocks could pick up in an economic downturn, which would give firms a chance to buy up companies at a discount. Blackstone in recent months has pounced on energy assets, which have been battered by a steep drop in oil prices in recent years.
“When we look around for things to buy in this fairly pricey world, energy looks like it’s frankly undervalued today versus where it’s going to be in the future,” Blackstone president and chief operating officer Hamilton “Tony” James said on an earnings call Thursday.
Write to Matt Jarzemsky at email@example.com
This article was first published by The Wall Street Journal