The world’s largest private-equity firm, Blackstone Group LP (BX), reported a decline of 12% in fourth-quarter profit owing to a fall in performance fees and investment income.  Performance fees for the year was down 21% to $358.1 million, and investment income declined 59% to $65.5 million. As of December 31, fee-earning assets under management were at a record high of $136.8 billion, an increase of 25% from 2010, with hedge fund-of-funds business, with assets of around $37.8 billion, constituting the largest segment.

In a statement issued earlier today, Blackstone said that economic net income, a measure of profits that excludes the impact of costs associated with the initial public offering,  dropped to $449.9 million, or 40 cents a share, from $512.7 million, or 46 cents, a year earlier, which was in line with the street estimates. As of December 31, there was a 14% growth in assets under management for its Hedge Fund Solutions in the fourth quarter, which stood at $37.8 billion. Blackstone had net inflows of $271.5 million for the fourth quarter, bringing year-to-date net inflows to $6.4 billion, majority of which went to its commingled and customized investment products.

Driven by an increase in performance fees, the company saw a jump in profit from its real estate business, which rose 56 percent to $1 billion in 2011 from the year before. In its biggest deal since the collapse of 2007, Blackstone acquired the U.S. malls of Australia’s Centro Properties Group for $9.4 billion in June 2011.

According to Blackstone President and COO, Tony James, the company invested a near-record $16 billion last year and returned $9 billion to investors, with the forecast to invest almost $10 billion in 2012, half of which will be earmarked for private equity. In one of the biggest commitments by a single investor, Blackstone won as much as $1.8 billion in state pension money from New Jersey.

Bill Katz, Citigroup analyst, said compared to its peers, Blackstone was in a stronger position. “With favorable fundamentals across all four businesses, we look for further growth in both assets under management and, more importantly, fee paying assets under management”, he said.

Last year Blackstone was involved in 53 deals which had a combined valuation of $27.1 billion.

Blackstone was down 0.6 percent to $16.54 at 2:30 p.m. in New York trading, but is up almost 19 percent year to date.