Blackstone Earnings: Profits Are Up, but Buyouts, IPOs Are Off

The recent stock market correction has been brutal for The Blackstone Group (BX). Since mid-April, the firm's shares have gone from $15.25 to $10.58.

On Thursday, though, the alternative asset management giant was showing some strength -- in light of its second-quarter earnings report, shares were up around 4% late in the day.

Blackstone reported $205 million in profits for the second quarter, based on a metric known as economic net income, which is a non-GAAP measure that includes unrealized portfolio gains and excludes IPO and acquisition charges.

While Blackstone suffered from weakness in its private-equity and hedge fund businesses, it got a nice boost from the real estate segment. Various office markets are showing better occupancy rates and the hospitality industry is improving.

No doubt, a diversified platform is certainly critical for alternative asset manager. But it's not enough to fully compensate for a bad market correction and credit markets that have experienced widening spreads.

Private Equity Worsens

Until several months ago, it looked like the buyout business was on the mend. But according to Blackstone, things have regressed. All in all, it's getting tougher to obtain debt financing for transactions.

Part of this stems from the recent instability and concerns about the global economy. At the same time, investors are worried about new political attacks on the financial services industry, and an as-yet somewhat nebulous set of new regulations.

Look at the second-quarter performance for Blackstone's private-equity segment. Revenues came in at $83.9 million, down from $198.6 million in the same period a year ago thanks to a fall-off in performance fees and allocations. Moreover, Blackstone had a failed $15 billion deal for Fidelity National Information Services.

Or consider Blackstone's credit and marketable alternatives business. Revenues dipped from $140.4 million to $124.3 million over the past year. Again, the problem was market instability.

The Buyout Driver

Regardless of how its other segments do, though, the fact remains that for Blackstone, the key will lie in a recovery in its buyout business. And, the good news is that the firm recently closed a new $13.5 billion fund. In fact, Blackstone now has a whopping $29 billion in dry powder to do deals.

And going into the fall, there could be a nice return from the Nielsen IPO. Blackstone also indicated that Freescale Semiconductor is prepping for a public offering.

Despite all this, investors are taking a wait-and-see approach. If history is any indication, the private-equity business can be quite fickle.