What is the primary driver behind the significant net loss in the third quarter of 2008?

The primary driver of the significant net loss was the substantial decline in performance fees and allocations, which turned negative, and a significant loss in investment income. This was largely due to adverse market conditions that reduced the fair value of the underlying portfolio assets of Blackstone's funds.

How has the company's Assets Under Management (AUM) trended, and what contributed to the changes?

Assets Under Management increased by 18% to $116.3 billion as of September 30, 2008, compared to the previous year. This growth was primarily attributed to the acquisition of GSO Capital Partners LP and significant capital raised for real estate funds. However, it's important to note that the company received redemption notices for $4.15 billion from third-party investors in its Marketable Alternative Asset Management segment, effective December 31, 2008.

Despite the overall financial decline, which segment showed strength?

The Financial Advisory segment demonstrated significant strength, with total revenues increasing by 91% to $160.7 million in the third quarter of 2008 compared to the same period in 2007. This growth was driven by strong performance in corporate and mergers & acquisitions advisory, and restructuring and reorganization advisory services, benefiting from challenging credit market conditions.

What is the impact of the current market environment on Blackstone's fee structure?

The current market environment, characterized by high volatility and declining asset values, has negatively impacted Blackstone's fee structure. Management fees, which are partly based on Net Asset Value (NAV), are subject to decreases as asset values decline. Performance fees and allocations, which are a significant revenue source, have been severely impacted, turning negative due to losses in fund investments. Investment income has also declined substantially.

BX 10-Q Quarterly Report Q3 FY2008 — Revenue, Net Income, EPS

Summary

Blackstone Inc. reported a net loss of $340.3 million for the third quarter of 2008, a significant increase from the $113.2 million net loss in the same period of 2007. This deterioration was primarily driven by substantial negative performance fees and allocations, and a significant loss in investment income. Total revenues declined by 90% for the nine months ended September 30, 2008, compared to the same period in 2007. Despite a decline in total assets, assets under management increased by 18% year-over-year to $116.3 billion, largely due to the acquisition of GSO and capital raised in real estate funds. The company's financial advisory segment showed robust revenue growth, but this was outweighed by losses in its core asset management businesses amid challenging market conditions.

Key Highlights

1Net loss widened significantly to $340.3 million in Q3 2008 from $113.2 million in Q3 2007.
2Total revenues for the nine months ended September 30, 2008, decreased by 90% to $261.9 million from $2.7 billion in the prior year period.
3Performance fees and allocations were a significant drag, reporting a negative $416.1 million in Q3 2008 compared to a positive $149.9 million in Q3 2007.
4Investment income also turned negative, recording a loss of $191.6 million in Q3 2008, compared to income of $47.3 million in Q3 2007.
5Assets under management increased by 18% to $116.3 billion as of September 30, 2008, driven by the GSO acquisition and real estate fund capital raises.
6The Financial Advisory segment demonstrated strong revenue growth, with a 91% increase in Q3 2008 revenues.
7Compensation and Benefits expenses increased by 7% in Q3 2008 compared to Q3 2007, largely due to increased equity-based compensation amortization and the GSO acquisition.

Blackstone Inc. Quarterly Report for Q3 Ended Sep 30, 2008

Summary

Key Highlights

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