A man dressed as a businessman, holds a briefcase covered in U.S. dollar notes. (Photographer: Simon Dawson/Bloomberg)

Blackstone’s War Chest of Cash Shrinks as Firm Puts More to Work

(Bloomberg) -- Blackstone Group LP is making a dent in its war chest of cash, finding opportunities even as asset values rise.

The world’s largest alternative asset manager put more of its dry powder -- the amount of money it has raised but not invested -- to work, leaving it with $88 billion in the second quarter, Blackstone said in a statement Thursday. The mound of capital has more than doubled since 2013, when it was $39 billion.

Led by Stephen Schwarzman, Blackstone and its private equity rivals together broke fundraising records last year. But as asset values have risen, managers have had to search harder to find deals that can produce the big returns that attracted investors in the first place. Rather than overpaying, firms have stockpiled the dry powder, which reached an all-time high of more than $1 trillion as of June 30, according to Preqin.

“We’ve been in a fairly robust fundraising cycle with the big getting bigger,” said Gerald O’Hara, an analyst at Jefferies. “The focus is shifting more from what they can raise to how prudently they can deploy the money.”

Blackstone’s War Chest of Cash Shrinks as Firm Puts More to Work

Blackstone’s deployed $8.4 billion in the quarter. Its private equity business invested $2.6 billion. The real estate and credit units deployed $4.6 billion and $2.4 billion respectively.

The firm is planning to launch its next global real estate fund this quarter and expects it to be at least as large as the previous $16 billion fund, President Jonathan Gray said on a media call Thursday.

Gray said yesterday that his firm doesn’t feel rushed into spending its clients’ money. While private equity firms are competing, particularly for smaller deals, Blackstone tends to invest on a larger scale, he said.

“Investors give you capital for six years,” Gray said at the CNBC Institutional Investor Delivering Alpha Conference in New York. “You can be patient.”

Gray said Blackstone is investing heavily in warehouses given the growth of online sales. The firm has made acquisitions in the U.S., Canada, China and Japan.

Assets, Income

During the second quarter, assets under management fell about $10.2 billion to $439.4 billion from the first period. Assets under management dipped after Blackstone’s credit group dissolved its partnership as a subadviser to FS Investment Corp.’s funds to pursue its own direct lending business.

AUM is expected to cross $500 billion in the first half of next year, Schwarzman said on the call with analysts Thursday.

The New York-based firm’s economic net income, which reflects both realized and unrealized investment gains, was $1.1 billion, or 90 cents a share, compared with $695.7 million in the year-ago quarter, Blackstone said. The results beat estimates of 74 cents a share, the average of 13 analysts compiled by Bloomberg.

The firm brought in $20.1 billion in the quarter. The company raised $5 billion for infrastructure investments.

Blackstone’s private-equity portfolio appreciated 9.5 percent in the quarter, spurred by gains in public holdings and mark-ups in private assets from announced sales, the firm said. Its real estate business saw gains of $4.3 billion driven by the sale of its remaining stake in Hilton hotels and three U.K. office properties.

Shares of Blackstone fell about 2.2 percent to $35.45 at 12:19 p.m. in New York as the broader market declined. They have gained about 2 percent in the past 12 months.

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