harvest blackstone funds

It’s Harvest Season For Blackstone Funds

The private equity business can be a lot like the farming. Sure, private equity guys wear thousand dollar suits and rarely get their hands dirty. But both PE managers and farmers are in the business of planting seeds, watching them grow, and reaping a harvest. The second half of 2016 is setting up to be harvest season for Blackstone funds.

Market Strength Leads to Profits for Blackstone Funds

Shares of The Blackstone Group, LP (BX) traded sharply higher this week. The move came after Blackstone released its second quarter earnings report. My favorite private equity company beat analyst expectations, posting earnings of $0.30 per share, up from last year’s figure of $0.21.

The company also announced a quarterly dividend of $0.36 per share. While this is down from the dividend Blackstone paid last year, it’s ahead of the 28 cents investors received after the first quarter.

Oops! We could not locate your form.

Blackstone pays a variable dividend, based on the “distributable earnings” generated by Blackstone funds during each quarter. Distributable earnings are based largely on incentive fees Blackstone is able to “lock in” after selling investments for a profit.

That’s important because as you’ll soon see, Blackstone is scheduled to lock in some very big profits.

For now, shares of BX are trading higher as investors anticipate future profits from Blackstone funds.

BX higher on blackstone funds profit

Blackstone Continues to Expand It’s Business

One of the most important metrics I look at for Blackstone is the company’s assets under management (or AUM). The more money Blackstone funds are managing, the more fees the company can charge clients.

This quarter, Blackstone’s AUM hit a new record of $356.38 billion. Assets were higher for two reasons.

First, Blackstone was able to raise new capital from institutional and wealthy investors.

Second, Blackstone funds generated positive returns, boosting the value of these assets.

It’s encouraging to see that not only did Blackstone increase the firms total assets, but each category of assets (private equity, real estate, hedge funds and credit) increased individually.

Blackstone funds AUM increased


As the company continues to increase its AUM, this sets the stage for future profits. Blackstone should be able to charge management fees and incentive allocations on the majority of these funds. These fees boost distributable earnings, which in turn gives Blackstone more room to pay higher distributions to BX investors.

Harvest Season for Blackstone’s Funds

One of the most encouraging things I heard on Blackstone’s conference call was the company’s intentions for the rest of the year.

Blackstone’s president, Tony James, noted that the company’s investment values were “generally full.” In other words, Blackstone’s investments are trading at premium prices – or could be sold to other investors for a profit.

James specifically said, “We expect to be in distribution mode for the balance of this year.”

That means Blackstone funds will likely be selling positions at these premium prices and locking in profits. This will naturally lead to higher incentive allocations – and higher distributions for investors.

Earlier this week, I wrote about the potential for Invitation Homes to be sold as an IPO. This is just one of the many investments Blackstone has available to sell at a profit.

If Blackstone is successful at unloading these investments at a profit over the next few months, investors could be caught off guard. And I mean that in a good way.

Unexpectedly high earnings should help Blackstone continue to trade higher. And as the company announces higher distributions (basically dividends), investors searching for yield will flock to BX.

While shares are now trading significantly higher than they were just a few weeks ago, I still think Blackstone is an excellent investment. I would consider selling puts on this stock right away or even buying shares outright.

Not only will you receive a lucrative dividend yield, your shares could trade sharply higher over the next six months.


Zach Scheidt