In Search of the Perfect Investment

Load the boat on Blackstone (BX). What’s not to like?

+ A dividend yield of 7.48%. The boss gets his rewards the way you do — via dividends. That’s better customer/management alignment than 99.9% of other money managers.

+ The world’s largest money manager with a sterling reputation and sterling management.

+ Money to be managed that’s pouring in like there was no tomorrow, and on which to take delicious fees.

+ The stock is down a little because of recent “poor” results.

Here’s the latest two years:

Here’s the Wall Street Journal’s recent story on Blackstone’s latest results:

Blackstone Earnings Slide, but Payouts Still Healthy
Private-equity firm reports slower pace of asset sales

Blackstone Group LP’s second-quarter profit declined as choppy markets reduced the value of some holdings and fee income declined.

But all wasn’t bad for the New York investment firm. It also disclosed record inflows of investors’ cash and said it would pay out the third highest dividend in its history.

Blackstone on Thursday reported second-quarter profit of $134.2 million, or 21 cents a share, down from $517 million, or 85 cents a share, for the same period last year.

Economic net income, which includes unrealized gains as well as cash earnings, was $508 million, or 43 cents a share, down from $1.3 billion, or $1.15 cents a share, a year earlier. The result matched the expectations of analysts polled by Thomson Reuters.

The industry profit measure suffered from slumping real-estate stocks the firm owns, executives said. Revenue that was nearly half what it was in the year-earlier period, largely on a 59% decline in deal profits, or performance fees, also proved a drag.

Still, in money gathering, Blackstone continued to distance itself from rivals in so-called alternative asset management, collecting $31.3 billion of commitments from investors during the three-month period, a record for the firm-as well as the industry-that lifted its assets under management to $332.7 million as of June 30.

Blackstone shares, which are up 24% on the year, gained 1.5%, or 63 cents, to close at $41.96 on Thursday.

Over the past year, Blackstone has raised $93.9 billion for an array of funds, with focuses ranging from energy to buyouts, real estate, European company debt and even stakes in other firms’ funds. That new cash exceeds the total assets managed by rival Ares Management LP and is just shy of the $99.1 billion KKR & Co. said it managed as of March 31.

“It’s actually more than the combined fundraising of the other public alternative managers for any year in history,” said Stephen Schwarzman, Blackstone’s co-founder and chief executive.

About 13% of the $93.9 billion came from individuals, who are now investing in Blackstone funds at a collective rate of about $1 billion a month, typically through brokerages and banks that pool commitments from high-net-worth individuals, Chief Financial Officer Laurence Tosi said. The firm, which has long relied on multimillion-dollar commitments from institutional investors such as pensions, endowments and sovereign-wealth funds, has for years worked to tap the vast pool of cash controlled by individual savers.

Market Talk

  +  Another Big Dividend: A silver lining to Blackstone’s 2Q earnings miss: the firm printed a 74c dividend, the 3rd-highest quarterly payout in its history, despite slowing asset sales. For the firm’s top shareholder, CEO Stephen Schwarzman, the dividend means a payout north of $172M for the quarter, which comes on the heels of $206M+ after 1Q, when BX paid out a company-record 89c/share.

    + Energy Fund Shows Resiliency: Blackstone’s first private-equity energy fund has held up well amid the slump in oil prices, which has punished many similarly focused funds. BX’s $2.5B fund, which invests in deals alongside the firm’s primary buyout fund, was up 28% annualized, after fees, through June. That compares with a 29% annual return as of March 31, 34% at year-end and 52% as of last summer, when oil began its tumble. The fund’s slowing returns might seem steep, but BX’s investors should be pleased considering results at rivals-such as First Reserve, which has two multibillion-dollar energy funds-are in the red.

  + In Blackstone Investors Trust: Blackstone has had an unprecedented stretch raising cash from investors, reporting assets under management of $332.7B through June, up 19% from the same time a year ago despite a huge selloff of assets into the rising markets. That total is tops among the so-called alternative asset managers by a wide margin. In the past year alone investors have committed $93.9B to BX. To put that in perspective, through March rivals KKR and ARES managed $99.1B and $86.9B, respectively.

For Blackstone, the challenge ahead will be maintaining its investing record with an ever-growing pile of money to put to work. As of June 30, the firm had $82 billion free to invest across its business segments: private equity, real estate, hedge funds and credit.

Lately Blackstone has had more money offered to it for some funds than its executives think the firm can handle. It took the firm only four of the planned 12 months to raise its latest flagship private-equity fund; it turned billions of dollars away after it reached its self-imposed limit of $17.5 billion, said Hamilton “Tony” James, the firm’s president. The same thing happened earlier in the year with the firm’s $15.8 billion real-estate fund.

Real-estate investments have been easier to come by lately for the firm, which invested $3 billion during the second quarter and agreed during the period to pump another $5 billion into other deals, including a $23 billion trove of assets Blackstone and Wells Fargo -0.33 & Co. agreed to buy from General Electric in April. Mr. James said that Blackstone is generally paying below replacement cost for real estate despite rising prices.

The firm’s credit and private-equity deal makers have had a harder time putting money to work amid high prices for companies across the globe, Mr. James said. The private-equity unit, for instance, invested $1.9 billion during the second quarter, down from $2.5 billion in the first quarter and $2.2 billion the same period a year earlier.

Selling assets has been a different story. Blackstone raised $8.7 billion selling real-estate and private-equity assets, including blocks of stock in Hilton Worldwide Holdings Inc., -0.04 Pinnacle Foods and Catalent Inc., a biotechnology company. The closing of device maker Zimmer Holdings’s merger with crosstown rival Biomet Inc. netted Blackstone $1.2 billion, as well as stock in the combined company, for its Biomet stake.

Those proceeds helped the company generate distributable earnings-the portion of profit from which shareholders can get a slice-of $1 billion in the second quarter, topping the year earlier period’s $765.2 million. In turn, Blackstone said it would pay a dividend of 74 cents for the quarter, an increase from 55 cents from a year earlier.

Hats off to the Afghan Intelligence Agency. This morning BBC News reported that Mullah Omar (Taliban head) had died. The news came from “top sources in the Afghan administration and intelligence agency.”

Read the BBC story further and you’ll find that Mullah Omar had actually died two to three years ago!

Go figure.

Harry Newton who snagged a couple of days for him and Susan at The Ahwahnee Lodge in his favorite place in the whole world — Yosemite Valley, California.

Inspiration for the trip: A recent wedding at the top of Half Dome.

The photographer signed up for “8.2 miles to the top, 4500 feet of elevation gain, and then the cables…” (If you don’t want to scale the sheer face, you climb the back way using cables.)

Then you get to throw the bouquet.

I wonder if anyone caught it?

You can read the whole wonderfully romantic story and see more photos here.

Can I convince Susan to renew her vows at the top of Half Dome when we’ll be there next month? We’ll be celebrating 39 1/2 years of happy marriage.