Blackstone beats expectations in rocky market

Steve Schwarzman, Blackstone's chairman and CEO, stressed the strength of the company's balance sheet and growing number of opportunities even as credit still remains hard to obtain.

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NEW YORK (CNNMoney.com) -- Blackstone Group, one of the world's largest private equity firms, reported a quarterly loss Wednesday due mainly to compensation expenses tied to last year's initial public offering.

Backing out those costs, Blackstone reported a sharp profit decline from a year ago amid tough credit market conditions. But the results were better than analysts were expecting.

The New York City-based firm reported a net loss of $156.5 million.

But excluding certain items, Blackstone reported what it calls economic net income of $165.6 million, or 15 cents per common unit, during the second quarter. Analysts polled by Thomson Reuters were forecasting a profit of 8 cents per share on this basis.

A year ago, Blackstone reported economic net income of $655 million after taxes.

Blackstone (BX) shares gained nearly 3% in late morning trade.

"It was as good of a quarter you are going to see in an environment like this," said Jackson Turner, an equity research analyst with Argus Research in New York.

As one of just a few publicly traded leveraged buyout firms, investors were closely watching the results of Blackstone for some indication as to how the broader private equity business was faring.

Blackstone's flagship corporate private equity business, in which it buys companies with the aim of overhauling and selling them at a profit or taking them public within several years, saw its revenue plunge 77% during the quarter from a year ago.

Driving that decline was a steep decline in performance fees loss, or the 20% cut managers take when their funds make a profit.

Performance fees are an important metric since they are one of the biggest components of Blackstone's revenues.

Also weighing on the company's results were the company's real estate and financial advisory businesses which saw their revenues decline from a year ago.

One bright spot for Blackstone was its alternative asset management division, which saw improved results, helped by its acquisition earlier this year of GSO Capital Partners, a hedge fund that specializes in credit.

Top executives at Blackstone offered a tempered outlook given the ongoing difficulty in securing credit from investment banks and a more challenging fundraising environment.

"We still don't see things improving for a while," said Tony James, Blackstone's president and chief operating officer, during a conference call with analysts.

But during the quarter, Blackstone grew the number of its assets under management, which Blackstone also earns a fee from by investing for others, to $13.5 billion, from $13.2 billion a year ago.

Blackstone has made numerous investments in recent months, albeit on a much smaller scale than the mega-deals of recent years like its $26 billion purchase of the hotel chain Hilton, which was announced a little over a year ago.

In July, it announced plans to buy a minority stake in the mortgage finance company Bayview Asset Management for nearly $750 million. The company also agreed to buy the security company AlliedBarton for an undisclosed amount.

The company is also increasing its international focus. Blackstone announced the opening of a new office in China yesterday

Nonetheless, James noted that Blackstone could soon shift to making investments in the U.S. financial services sector, particularly regional banks that are desperate for capital as a result of rising loan losses.

"That could happen fairly shortly, but I think opportunities will be around all this year and probably all of next year," said James. "There's not a rush."

In late June, Blackstone celebrated the one-year anniversary of its initial public offering. At the time, Blackstone raised more than $4 billion by selling a 12.3% stake in the firm and opening up the red-hot private equity industry to everyday investors.

But Blackstone shares fell sharply in the months that followed as the credit markets blew up and leveraged buyouts came to an abrupt halt.