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Blackstone FoHFs returned 3.2% in Q3-2010 (lagging Q3-2009's 5.5%), group’s earnings increased from inflows in Q3

Thursday, October 28, 2010
Opalesque Industry Update -
Economic Net Income increased to $339 million for the third quarter of 2010, up 23% from $275 million for the third quarter of 2009.

Net Fee Related Earnings increased to $113 million for the third quarter of 2010, up 19% from $95 million for the third quarter of 2009.

Distributable Earnings increased to $166 million for the third quarter of 2010, up 67% from $100 million in the third quarter of 2009.

GAAP Results Attributable to The Blackstone Group L.P. improved in the third quarter of 2010 with a net loss of $44 million, compared to a net loss of $176 million in the third quarter of 2009, in each case including net IPO and acquisition-related charges.

Fee-Earning Assets Under Management totaled $104.3 billion at September 30, 2010, up 8% from $96.3 billion at September 30, 2009.

Blackstone purchased a 40% equity interest in Pátria, one of Latin America’s leading alternative asset managers, on October 1, 2010. Blackstone declares a quarterly distribution of $0.10 per common unit.

The Blackstone Group L.P. (NYSE: BX) today reported its third quarter 2010 results.

Economic Net Income was $339.3 million for the third quarter of 2010, an increase of $63.9 million from $275.3 million, or 23%, for the third quarter of 2009. Economic Net Income was $904.9 million for the nine months ended September 30, 2010, an increase of $531.2 million compared to Economic Net Income for the nine months ended September 30, 2009 of $373.8 million. The increase in Economic Net Income was principally driven by increased Performance Fees and Allocations and Investment Income. For the third quarter of 2010, Total Segment Revenues were $792.2 million, up significantly from $603.8 million for the third quarter of 2009. The improvement was driven by greater Investment Income derived from an increase in the carrying value of the underlying portfolio investments in the Private Equity and Real Estate segments, and by increases in Performance Fees and Allocations in the Real Estate and Credit and Marketable Alternatives segments. These increases were partially offset by decreased fees earned in the Financial Advisory segment.

Total Segment Expenses were $424.1 million for the third quarter of 2010, an increase from $325.4 million for the third quarter of 2009. The increase in Compensation and Benefits to $339.9 million for the third quarter of 2010 was primarily driven by an increase in Performance Fee Related Compensation and an increase in Base Compensation, which includes all compensation for all partners and employees excluding only compensation from performance fees. Other Operating Expenses increased to $84.3 million.

Net Fee Related Earnings from Operations were $112.9 million for the third quarter of 2010, up from $94.9 million for the third quarter of 2009. Net Fee Related Earnings from Operations were $319.6 million for the nine months ended September 30, 2010, up from $271.2 million for the nine months ended September 30, 2009. Net Fee Related Earnings from Operations increased principally as a result of increased Management and Advisory Fees and investment income from Blackstone’s Treasury cash management strategies, partially offset by an increase in Base Compensation.

GAAP results for the third quarter of 2010 included Revenues of $784.0 million, compared to $597.0 million for the third quarter of 2009, and Net Loss Attributable to The Blackstone Group L.P. of $44.4 million, compared to a net loss of $176.2 million for the third quarter of 2009.

On October 1, 2010, Blackstone purchased a 40% equity interest in Pátria, one of Latin America’s leading alternative asset managers and advisory firms. Pátria has $3.2 billion in total assets under management across private equity, real estate, infrastructure and hedge funds. Pátria is a fast growing market leader with an excellent investment track record, and will continue to be managed by its current partners. As part of the transaction, Blackstone and Pátria have agreed to cooperate in building their businesses in Brazil and throughout the region. Blackstone believes this will allow both firms to offer a broader array of investments to their limited partners and help drive superior fund returns over the long-term.

Global equity markets moved sharply higher in the third quarter of 2010, while credit markets also rose and high yield spreads moderately tightened. Investors reacted positively to sustained above-average corporate earnings growth and the expectation of continued economic recovery. Economic data remained mixed, however, and most indicators pointed to a slowing in the recovery of the U.S. economy, including both output and employment rates. In real estate, the fundamentals generally continued to improve in the third quarter. In office, occupancy trends and leasing activity continued to improve modestly in most markets, and new supply remained at historically low levels. In hospitality, industry Revenue Per Available Room, or RevPAR, grew 8.4% in the third quarter of 2010, and has experienced positive growth since March 2010.

Stephen A. Schwarzman, Chairman and Chief Executive Officer, said, “While global economic and market environments remain fragile, we saw continued marked improvement in the carrying values of our investment funds during the third quarter. Our ability to leverage the knowledge we have housed across our businesses helped us create value through operational programs at the companies we own on behalf of our investors and identify exciting new opportunities. As of quarter end, we have grown total assets under management to $119 billion, which speaks to the hard work and performance of our team...

The net core funds composite returns for Blackstone’s funds of hedge funds was 3.2% for the third quarter of 2010 compared to 5.5% for the third quarter of 2009. Base Management Fees increased $14.7 million from the third quarter of 2009 as a result of positive net inflows and performance in the funds of hedge funds business and the April 1, 2010 acquisition of $3.5 billion in collateralized debt obligations and collateralized loan obligations (“CLO”) vehicles.

Fee-Earning Assets Under Management grew 17% for the third quarter of 2010 to $55.6 billion from $47.4 billion for the third quarter of 2009. The increase from 2009 was principally due to net inflows and market appreciation in the funds of hedge funds and the April 1, 2010 acquisition of $3.5 billion in collateralized debt obligations and CLO vehicles.

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