10-QPeriod: Q2 FY2008

Blackstone Inc. Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 8, 2008For Securities:BX

Summary

Blackstone Inc. (BX) reported a significant net loss of $156.5 million for the three months ended June 30, 2008, a stark contrast to the $774.4 million net income in the same period of the prior year. This downturn is largely attributed to a substantial decrease in Performance Fees and Allocations, which fell by $467.5 million year-over-year, and a decline in Investment Income (Loss) and Other. Total revenues for the quarter dropped by 63% to $353.7 million. Despite the revenue challenges, the company saw a notable increase in Assets Under Management (AUM) to $119.4 billion, up 30% from the prior year, driven by acquisitions and growth in specific segments like Marketable Alternative Asset Management. Expenses increased significantly, by 144%, to $1.16 billion, largely due to higher Compensation and Benefits, particularly from equity-based compensation amortization and the acquisition of GSO Capital Partners LP. The company also faced ongoing litigation and potential regulatory headwinds concerning the taxation of carried interest. The six-month period ending June 30, 2008, reflects a similar trend, with a net loss of $407.5 million compared to a net income of $1.91 billion in the prior year. Total revenues plummeted by 81% to $422.2 million, while expenses more than tripled to $2.26 billion. The company's balance sheet shows total assets of $13.49 billion and total liabilities of $3.68 billion as of June 30, 2008. While the financial performance indicates a challenging period, the increase in AUM suggests continued investor confidence and underlying growth drivers for Blackstone's asset management business.

Key Highlights

  • 1Blackstone reported a net loss of $156.5 million for Q2 2008, a significant reversal from a net income of $774.4 million in Q2 2007.
  • 2Total revenues declined sharply by 63% to $353.7 million in Q2 2008 compared to the prior year, primarily due to a substantial drop in Performance Fees and Allocations.
  • 3Assets Under Management (AUM) increased by 30% year-over-year to $119.4 billion as of June 30, 2008, driven by acquisitions (GSO) and growth in specific segments.
  • 4Total expenses rose by 144% to $1.16 billion in Q2 2008, significantly impacted by higher Compensation and Benefits expenses, including equity-based compensation amortization and the GSO acquisition.
  • 5The company incurred a net loss of $407.5 million for the first six months of 2008, compared to a net income of $1.91 billion in the same period of 2007.
  • 6Blackstone is facing ongoing litigation, including an antitrust lawsuit related to private equity financing and a dispute with Alliance Data Systems Corporation over a terminated merger agreement.

Frequently Asked Questions

The primary drivers for the net loss were a substantial decrease in Performance Fees and Allocations, which fell by $467.5 million year-over-year, and a decline in Investment Income (Loss) and Other. This led to a 63% drop in total revenues to $353.7 million for the quarter.

The acquisition of GSO Capital Partners LP in March 2008 contributed to an increase in Assets Under Management and Management Fees in the Marketable Alternative Asset Management segment. However, it also contributed to higher Compensation and Benefits expenses and was part of the overall increase in Total Expenses.

Blackstone noted that market conditions remained challenging in Q2 2008 with slowing global economic growth, volatility in financial markets, and restricted lending. This environment has significantly impacted transaction levels in corporate and real estate markets, affecting several of Blackstone's businesses. The duration of these conditions remains unknown.

The substantial increase in Compensation and Benefits expenses, particularly for the six months ended June 30, 2008, was mainly due to higher amortization of equity-based compensation ($1.48 billion) and the inclusion of compensation and profit-sharing arrangements for senior managing directors and other employees, which were previously treated as partnership distributions prior to the IPO. The acquisition of GSO also contributed to this increase.