Antoine Antoniol/Bloomberg NewsStephen A. Schwarzman, the head of the Blackstone Group.
8:28 p.m. | Updated
Not even the Blackstone Group’s high-flying real estate arm could save the investment giant from an unexpectedly rough quarter.
Blackstone said on Thursday that it lost $341.9 million in the third quarter, as markdowns of its holdings overwhelmed moderate gains in management fees.
The loss, reported as a nonstandard metric known as economic net income after taxes, was a marked contrast from a profit of $339.3 million in the third quarter of last year. Blackstone also posted $124.1 million in negative revenue, as management fees were more than offset by the reversal of performance fees triggered by declining asset values.
On a generally accepted accounting principles basis, Blackstone reported a net loss of $274.6 million and negative revenue of $124.1 million for the quarter.
“The third quarter presented extremely challenging market conditions, dominated by risk aversion and volatility,” Stephen A. Schwarzman, Blackstone’s chairman and chief executive, said in a statement.
As one of the biggest publicly traded private equity shops, Blackstone is often regarded as a proxy for other alternative investment firms. So some of its now-publicly traded peers, including Kohlberg Kravis Roberts and Apollo Global Management, may also report weaker results.
The third-quarter loss interrupted what had been strong growth in Blackstone’s business, including a tripling of its profit in the second quarter this year. Much of that had been driven by the firm’s huge real estate division, which owns properties ranging from Hilton Worldwide to swaths of office buildings.
But the value of a slew of holdings, from real estate to Blackstone’s portfolio companies, declined, in some cases so much that the firm had to erase performance fee gains reported earlier this year.
Prolonged economic malaise would only continue to hurt the value of Blackstone’s holdings, which also include the likes of BankUnited of Florida and the software company SunGard. The turmoil would also stifle the market for initial public offerings of such companies, making it harder for private equity firms to sell their holdings and begin reaping returns. And shakier markets have made some banks more reluctant to finance leveraged buyouts, making it harder for Blackstone and others to conduct their core business of deal-making.
The global market troubles affected nearly every part of Blackstone’s business. Its private equity and real estate arms reported negative revenues, while its hedge fund of funds and GSO credit-trading unit showed steep declines in revenue. Blackstone’s financial advisory unit, which advises on mergers and corporate reorganizations, reported flat revenue.
Still, Blackstone’s top management has found some investment opportunities as asset prices have declined. The firm spent $4.8 billion worth of capital in the quarter, in its busiest period of activity since the heights of the private equity boom.
On Wednesday, Blackstone announced that it had acquired a 44 percent stake in Leica Camera, the high-end camera maker. And its GSO unit announced earlier this month that it would expand by buying the European money manager Harbourmaster Capital.
More deals could follow. Blackstone has $33.4 billion of uninvested capital, commonly known as “dry powder.” Its private equity unit alone held $16.9 billion in funds available.
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