Blackstone rode a widespread market advance in the second quarter, earning 36% more than a year earlier. The results fell short of analysts’ estimates as a downturn in energy prices hit private equity holdings.

While the asset manager’s public holdings tracked positively, private investments were “pressured by the underperformance in energy,” Credit Suisse analysts led by Craig Siegenthaler wrote in a note to clients before the results were announced. Energy was likely a “headwind,” Jefferies analysts led by Gerald O’Hara wrote.

Economic net income, which reflects both realized and unrealized investment gains, was $705.4 million, or 59 cents a share, compared with $519.8 million a year earlier, Blackstone said in a statement on Thursday. Analysts had expected earnings of 62 cents a share, the average of 13 estimates compiled by Bloomberg.

Blackstone’s $104 billion real estate business led sales in the quarter.
Blackstone’s $104 billion real estate business led sales in the quarter.

The firm’s real estate business, its largest by assets at $104 billion, led sales in the quarter. It sold off $4.6 billion of holdings, including shares of Hilton Worldwide Holdings and a string of Equity Office Properties assets.

Private equity, which oversees $100 billion, sold $2.8 billion in assets, including part of its holding in food-service distributor Performance Food Group and its remaining stake in SeaWorld Entertainment.

INFRASTRUCTURE PUSH
While Blackstone continues to attract attention given CEO Steve Schwarzman’s close ties to the Trump administration, it also made significant announcements of its own in the quarter. Saudi Arabia’s Public Investment Fund agreed to anchor a $100 billion infrastructure ambition that the firm seeks to build out over the coming quarters.

President Tony James, speaking Thursday on an earnings conference call, allayed concerns that the infrastructure fund would be dependent on government spending, saying there are enough existing investment opportunities. Most of the new administration’s initiatives have yet to crystallize, including President Trump’s plans to invest as much as $1 trillion on improving U.S. infrastructure. Trump on Wednesday issued an executive order to create an advisory council for the effort.

Blackstone will begin fundraising for the infrastructure pool in autumn, James said, noting that the firm has moved about half a dozen investment professionals to the strategy. He also hinted at plans to hire outside talent for the fund, including a “world-class” operating partner who “will knock your socks off.”

ACHILLES’ HEEL
It was a commemorative quarter for Blackstone as it celebrated its 10-year anniversary as a public company in June. The stock was little changed from its initial listing price, continuing to fuel discussions over public-market valuations of alternative-asset managers.

On the personnel front, the firm promoted Dwight Scott to president of its credit unit, GSO Capital Partners, as Blackstone deepens its bench of leadership candidates. Succession in the industry continues to be a hot-button topic as founders age and firms begin clarifying plans for transitioning to the next generation.

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“We have really well-thought-out, carefully planned succession plans in all of our businesses, from the very top of the firm right on down, for every critical seat,” James said Thursday. “The Achilles’ heel of any asset management firm is succession. We’re comfortable that we have the best succession planning in the industry.”

BESTING S&P
Blackstone’s distributable earnings, which reflect cash profits on asset sales and fund management fees, were $781.4 million for the three months ended June 30, compared with $494.9 million a year earlier. Blackstone said it will pay stockholders a dividend of 54 cents a share on Aug. 7.

The firm’s private equity portfolio appreciated 2.8% in the quarter and its real estate holdings gained 5.4%, both exceeding the 2.6% gain posted by the S&P 500 of large U.S. companies. Peers including Carlyle Group, KKR and Apollo Global Management are scheduled to report results in the coming weeks.

Overseeing $371.1 billion across private equity, real estate, credit and hedge funds, Blackstone is viewed as a bellwether for the alternative-asset industry. Peter Grauer, chairman of Bloomberg, the parent of Bloomberg News, is a non-executive director at Blackstone.

Bloomberg News