(Bloomberg)--Blackstone Group LP, the biggest manager of alternative assets, posted record fourth-quarter earnings as it sold real estate and private-equity investments at a profit. The shares rose the most in a year.

Economic net income, a measure of earnings excluding some costs, more than doubled to $1.54 billion, or $1.35 a share, from $670 million, or 59 cents, a year earlier, New York-based Blackstone said today in a statement. Analysts had expected earnings of 83 cents a share, according to the average of 16 estimates in a Bloomberg survey.

Chief Executive Officer Stephen Schwarzman, who led a push by private-equity firms to expand beyond leveraged buyouts, said last month he has “aggressive plans” to grow further. Among Blackstone’s biggest diversification moves has been the real estate business, which oversees $79 billion in assets. The group last month filed to take public La Quinta Holdings Inc. two weeks after bringing Hilton Worldwide Holdings Inc. to the public markets. In October, Blackstone-owned Brixmor Property Group Inc. raised $825 million in an initial public offering.

“Real estate continues to rock,” Blackstone President Tony James said on a conference call with reporters today. “As with private equity, this was driven primarily by performance from strong investment returns.”

Shares Rise

Blackstone rose 5% to $32.47 at 12:01 p.m. in New York, after earlier gaining 7.5%, the most since Jan. 31, 2013. The company last month closed above $31 for the first time since 2007, the year it went public at that price before the housing crisis froze financial markets, sending Blackstone shares as low as $3.87 in February 2009. The stock more than doubled in 2013.

Performance fees, earned for exceeding certain fund performance thresholds, more than tripled from a year earlier to $1.69 billion, from $470.2 million a year earlier.
One of the largest gains came from Hilton, a deal that was both Blackstone’s biggest equity investment and the largest paper profit in its history. Blackstone’s stake in the McLean, Virginia-based hotel operator is valued at $16.3 billion as of yesterday’s closing price, according to data compiled by Bloomberg, giving the private-equity firm a $9.8 billion gain on its investment.

Gray, Baratta

The real estate funds, run by Jon Gray, rallied 13% in the quarter and the private-equity pools, overseen by Joe Baratta, appreciated 12%, outpacing the 9.9% advance in the Standard & Poor’s 500 index. Blackstone’s private-equity business had gains from share sales of Nielsen Holdings NV, SeaWorld Entertainment Inc., and Pinnacle Foods Inc.

“Private-equity firms benefit from strong IPO markets that let them reap the exits that make or break them,” Erik Gordon, a business professor at the University of Michigan, said in an interview today. “It’s a competitive business, so the question is whether Blackstone does better during the IPO boom than KKR and Apollo and the other private-equity competitors.”

KKR & Co., the New York-based firm run by cousins Henry Kravis and George Roberts, and Leon Black’s Apollo Global Management LLC are scheduled to report fourth-quarter results next week.

Net Surges

Blackstone’s economic net income, or ENI, differs from U.S. generally accepted accounting principles. Under those standards, known as GAAP, Blackstone had net income of $621 million, compared with $106 million a year earlier. The firm will pay shareholders a dividend of 58 cents a share on Feb. 18.

Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, overhaul then sell them, and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5% to 2% of committed funds and keep 20% of profit from investments as a carried interest.

Blackstone’s assets under management rose to $265.8 billion as of Dec. 31, an increase of 7.1% from $248.1 billion at the end of the third quarter. The firm’s funds attracted $17 billion in new money in the fourth quarter, including commitments to its Asian and European real estate funds, which have raised $3.2 billion and $5.6 billion, respectively.

‘IPO Window’

Blackstone also invested money in new property deals, mostly outside of the U.S., said James. The firm committed $4 billion to real estate transactions in the quarter and $11.6 billion for the year, its most active year for new property investments ever, he said.

James said he sees the U.S. economy picking up strength, which will give Blackstone the opportunity to exit more investments during the year. The firm expects to register seven to eight holdings for IPOs in 2014, he said.

“There are definitely more tailwinds than headwinds,” said James. “I personally believe that the IPO window will stay open for another year.”

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