Well, Blackstone's Q3 was actually respectable in light of the severe credit crunch and financial instability. Revenues increased 14% to $526.7 million and economic net income (NEI) was $299.2 million, which is adjusted for income taxes and equity compensation.
But as Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), and Bank America (NYSE: BAC) clean up their mortgage mess, there is likely to be a void for lending on big transactions. Unfortunately, Blackstone's chief offering officer, Tony James, has no idea when this things will clear up but did call the situation a "black hole." In fact, the problems seem to be spreading into Blackstone's commercial real estate business, which saw a 44% drop in revenues to $109.1 million.
So in the meantime, Blackstone plans to focus on smaller deals, minority investments and even long positions in mortgage investments. After all, black holes can ultimately turn into good investments, right?
Keep in mind that Blackstone has been around for roughly 20 years and has seen various disruptive market cycles. The experience may payoff. According to the conference call, James indicated that the firm has focused its portfolio on defensive categories, such as on companies in healthcare, consumer products and healthcare. There has also been a focus on Asia, which should get a boost from the $3 billion investment from the Chinese government.
What's more, when the private equity market got frothy early this year, Blackstone remained disciplined. James said that Blackstone lost the bids on 90% of potential deals.
So as a public company and billions in fresh capital, Blackstone is positioned nicely to capitalize on financial wreckage. True, it may take some time to get returns. Then again, when it comes to investing in alternative investments, the strategy is to take the long view. And as seen with the history of Blackstone, it has worked quite well.
Tom Taulli is the author of various books, including The Complete M&A Handbook
and The Edgar Online Guide to Decoding Financial Statements
