Equity research group Sterne Agee says The Blackstone Group L.P. (NYSE:BX) is the place to be for at least the next three years. Sterne Agee published a company report spelling out their bull case for Blackstone this Monday, April 21st, praising the firm’s performance in both their private equity and public holdings.

The Private Equity (PE) segment produced a 7% overall return for the quarter, with particularly strong growth in the fully private healthcare and services sectors. The SA report estimates returns on public holdings were +5.5% in the quarter. The Blackstone Group L.P. (NYSE:BX)’s real estate funds were up +3.8% and hedge fund solutions generated a +1.8% return with continued risk-adjusted returns that exceeded the market. The credit segment also continues to produce strong returns with  rescue lending funds increasing by +5.3%, mezzanine funds up +4.3%, and the hedge funds rising 3.9% for the quarter.

Blackstone’s performance fees increasing

Blackstone Performance Fees

One key thread in Sterne Agee analyst Jason Wyeneth’s bull thesis on The Blackstone Group L.P. (NYSE:BX) is the steady increases in performance fees. He says performance fees are going nowhere but up for at least the next three or four years. “Based on our fund level modeling for Blackstone’s private equity and real estate segments, we don’t expect realized performance fees to peak this cycle until ’17 or ’18. With conservative assumptions beyond our formal modeling through ’15, we believe BX’s distribution can grow 20-25% annually for the next several years. Our ’14/’15 distribution estimates are $1.65/$2.05.”

Strong franchise growth

The SA report highlights that The Blackstone Group L.P. (NYSE:BX) is well positioned to enjoy continued strong franchise growth as the economy ramps up over the next couple of years. Wyeneth also points out that Blackstone raised $10 billion of new capital in this quarter alone, and is seeing strong demand well beyond its fund capacities. He also notes that $48 billion of unallocated capital ($21 billion not earning fees yet) and strong current investment performance will allow for growth despite accelerating exit activity over the next year or two.

Price targets

SA analyst Wyeneth has reduced his one year target on The Blackstone Group L.P. (NYSE:BX) from $42 to $39, but that still represents around a 30% upside from current price of $31 and change per share. Wyeneth also adds a new, three-year target for Blackstone in this report. “Our 3-year target of $57 (new) is driven by strong expected distribution growth over the next 3 years (to ~$3.10 in ’17) and a roughly staticyield (5.5% vs. current 5.3%).”