Blackstone 2010 Form 10-K Summary
Filing entity: The Blackstone Group L.P. (the filing predates the Blackstone Inc. name). Reporting period: Fiscal year ended December 31, 2010; comparisons are with fiscal 2009 unless noted.
Business context and reporting period
Blackstone managed private equity, real estate, hedge fund and credit businesses, alongside financial advisory and fund placement services. Assets under management were $128.1 billion at year-end, up 30%. Fee-earning assets under management were $109.5 billion, up 14%. In January 2011, the firm announced it would split Credit and Marketable Alternatives into Hedge Fund Solutions and Credit Businesses, with the new segment reporting beginning in first-quarter 2011.
Financial performance and liquidity
| Metric | FY 2010 | FY 2009 |
|---|---|---|
| Total revenue | $3.12 billion | $1.77 billion |
| Management and advisory fees | $1.58 billion | $1.48 billion |
| Performance fees | $937.8 million | $221.1 million |
| Investment income | $561.2 million | $40.6 million |
| Total expenses | $4.14 billion | $4.24 billion |
| Net loss attributable to Blackstone Group L.P. | $370.0 million | $715.3 million |
| Net loss per common unit | $1.02 | Not directly comparable; prior-year unit classes had different distribution rights |
| Net cash from operating activities | $(371.9) million | $411.5 million |
| Distributable Earnings, non-GAAP | $701.8 million | $479.0 million |
Revenue increased 76%, primarily from stronger performance fees and investment income, alongside 7% growth in management and advisory fees. GAAP net loss narrowed from $2.39 billion to $607.3 million; the loss attributable to the partnership narrowed from $715.3 million to $370.0 million. The GAAP net margin attributable to the partnership was approximately negative 11.9% of revenue. Results include substantial non-cash equity-based compensation and consolidation effects; GAAP net loss and Distributable Earnings measure different things.
Performance fees included $571.1 million of unrealized fees, while investment income included $532.0 million of unrealized gains. Compensation and benefits totaled $3.61 billion, down 4%, partly reflecting lower equity-based compensation. Segment Economic Net Income (ENI), a non-GAAP measure, was $1.58 billion, versus $723.8 million in 2009: Private Equity $485.5 million, Real Estate $639.5 million, Credit and Marketable Alternatives $372.0 million, and Financial Advisory $83.7 million.
Year-end cash and cash equivalents were $588.6 million. Blackstone also reported approximately $1.1 billion in Treasury cash management strategies, $285.2 million in liquid Blackstone funds and $1.6 billion in illiquid Blackstone funds. Corporate senior notes totaled $1.0 billion: $600 million at 6.625% due 2019 and $400 million at 5.875% due 2021. The $1.02 billion revolving credit facility was undrawn and matures in 2013. The balance sheet reported $18.84 billion in assets and $10.59 billion in liabilities; these totals include consolidated CLO vehicles and their debt, which are not recourse to Blackstone. Excluding that fund/CLO debt, corporate notes and operating-entity borrowings were materially lower than reported consolidated loans payable.
Material changes versus the prior period
- AUM rose from $98.2 billion to $128.1 billion, supported by market appreciation, inflows, CLO management agreements and the addition of Bank of America Merrill Lynch Asian real estate assets.
- Real Estate recovered sharply: segment ENI rose to $639.5 million from a $117.5 million loss, reflecting valuation improvements and performance-fee reversals. Credit and Marketable Alternatives ENI increased to $372.0 million from $265.2 million.
- Private Equity ENI was broadly steady at $485.5 million. Financial Advisory ENI declined slightly to $83.7 million from $85.7 million.
- Operating cash flow turned negative, from $411.5 million provided in 2009 to $371.9 million used in 2010.
- New variable-interest-entity accounting led to consolidation of CLO vehicles and materially increased reported assets and liabilities, limiting balance-sheet comparability with 2009.
Outlook, risks and unusual items
- Management provided no earnings guidance, citing significant variation in quarterly and annual results, including the timing of realizations, performance fees and advisory transactions. It described 2010 markets as improved but noted continuing economic weakness, particularly unemployment and constrained financing in developed markets.
- Management said available liquidity was expected to be sufficient for working capital and commitments, while warning that fewer realizations, weaker fund performance or market stress could reduce operating cash flow and liquidity. Blackstone had $1.24 billion of its own remaining fund and other investment commitments at year-end.
- Recorded potential clawback obligations were $273.8 million ($93.2 million attributable to Blackstone Holdings and $180.7 million to current and former personnel). The general partners paid a $19.3 million interim real estate clawback during 2010.
- Tax receivable agreements provide for payment of 85% of specified realized tax savings to certain pre-IPO owners and other holders. The reported amount due to certain non-controlling interest holders was $1.115 billion; expected payments depend on future tax savings and taxable income.
- Valuations carry estimation risk: the filing reported substantial Level III exposure, including 83% of Private Equity, 93% of Real Estate and 80% of Credit and Marketable Alternatives AUM (on the disclosed measure). Performance fees and investment income can reverse as valuations change.
- Key risks include market and financing conditions, fund-raising and investment performance, leverage at portfolio companies and funds, redemptions, conflicts of interest, reliance on key personnel, litigation, regulatory changes and possible changes to carried-interest taxation. The filing disclosed pending antitrust and IPO-related lawsuits but said management did not expect current proceedings to materially affect consolidated financial statements.
- Blackstone purchased a 40% non-controlling interest in Brazilian manager Pátria and issued $400 million of 5.875% senior notes. It also acquired CLO management agreements; associated consolidation materially affected reported balance-sheet totals.
Most important facts for investors to verify
- How much of 2010’s performance-fee and investment-income increase was realized in cash versus unrealized and potentially reversible.
- The reconciliation of GAAP losses to ENI and Distributable Earnings, including the effect of equity compensation and consolidated investment funds.
- Cash available to the operating partnership versus assets held in funds or illiquid investments, and the distinction between corporate debt and non-recourse CLO/fund debt.
- The assumptions and potential cash demands behind the $273.8 million clawback exposure, $1.115 billion tax receivable obligation and $1.24 billion investment commitments.
- Whether AUM growth, fund performance, fundraising and realizations continued after year-end; the filing gives no formal earnings guidance.