Blackstone Smiles on Q3 Results, But Turns Sour on KKR Issue

Blackstone Smiles on Q3 Results, But Turns Sour on KKR Issue

The Blackstone Group L.P. (NYSE:BX) reported its third quarter earnings today. It returned into profit zone, with $621.8 million in profits during the quarter, from a loss in the same period a year earlier. Hedge Fund Solutions, the hedge fund unit of Blackstone, saw a 17 percent increase in the total assets under management, primarily because of the better performance and growth. The hedge fund unit’s composite returns rose 3.3 percent during the quarter and 6.2 percent year to date. During the third quarter, net inflows were $1.7 billion.

Blackstone Smiles on Q3 Results, But Turns Sour on KKR Issue

Blackstone’s private equity unit also showed strong results, with a substantial increase in investment income and performance fees. The value of assets in the private equity unit jumped 7.1 percent in the third quarter. The performance fee increases came from BCP IV, BCP VI, and Blackstone Energy Partners.

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Seth KlarmanWhen Baupost, the $30 billion Boston-based hedge fund now managed by Seth Klarman, was founded in 1982, it was launched with a core set of aims. Q4 2021 hedge fund letters, conferences and more Established by Harvard professor William Poorvu and a group of four other founding families, including Klarman, the group aimed to compound Read More

The Blackstone Group L.P. (NYSE:BX) invested $1.4 billion during the quarter, and made a commitment to invest an additional $907 million. It takes the total capital invested and committed year to date in private equity unit to $3.7 billion. Additionally, Blackstone’s real estate funds appreciated 5 percent during the quarter.

Overall, The Blackstone Group L.P. (NYSE:BX) returned $14 billion to its investors, and attracted gross organic inflows of $38 billion over the past 12 months. Currently, Blackstone has $205 billion in assets under management.

During the company’s earnings call, its president, Tony James, said people who claimed he likes working with KKR & Co. L.P. (NYSE:KKR) were “full of malarkey.” Last week Tony James was in a tricky situation, when a federal court cited an e-mail he had sent to KKR co-founder George Roberts.

In 2007, a lawsuit was filed against the private equity executives alleging that they were colluding in participating in and staying away from the deals, in an attempt to keep the prices lower on their mega investments. The lawsuit raised questions about the industry’s code of conduct, at the time of the presidential campaign, and criticism for its business practices.

In the e-mail, Tony James urged George Roberts to work together for mutual benefit. He said, “Together we can be unstoppable, but in opposition we can cost each other a lot of money.”

But today, James outrightly denied that he enjoys teaming up with other private equity firms. Here is what he said (courtsey: Wall Street Journal):

“The lawsuit is a complete fabrication and a bunch of malarkey. When it comes to big deals it’s not only permissible for our firms to team up, but a requirement. When you’re in any competitive situation you want to pick the strongest partner you can and even then there’s so much animosity at times and vigorous competition between the firms, it can be hard even to get people in the room and be civil.

It’s a long way from what’s being alleged by the plaintiff’s attorneys. I suspect there’s some political motivation lurking here because we have a private-equity guy running for president (Mitt Romney). Usually the communication happens at the deal team but when you get a relationship issue between the firms, as sometimes happens, then sometimes the top management needs to cool them off.

It’s one thing to compete, but when you have personal animosity between the professionals it’s not a good thing, because inevitably, by no choice of our own, we end up co-investors of the company, and we do have to be able to work constructively together and be professional, even as we’re competitive.”

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