Blackstone reported a 7% appreciation in its private equity funds and a 5% increase in real estate.

Chairman and CEO Stephen Schwarzman confirmed “gross organic inflows of $38 billion over the last year, with $14 billion returned to our investors, driving us to record total assets under management of $205 billion.” $622 million of Economic Net Income (“ENI”) marked Blackstone’s third best quarter since going public.

Highlights from the quarter for new funds and strategies:

– latest global real estate fund fundraising completed with a cap at $13.3 billion
– the firm’s first dedicated energy fund completed fundraising with $2.4 billion of total commitments
– Hedge Fund Solutions (HFS) had $1.7 billion of net inflows during the quarter
– Credit launched its third closed-end fund and priced two new CLOs raising about $2 billion
– $36 billion of committed undrawn capital (“dry powder”) at the end of Q3
– Agreement to acquire Capital Trust’s asset management platform ($2.4 billion of AUM; chairman is real estate magnate Sam Zell).

Real estate and energy remain popular themes for the industry with Blackstone as a leader in the space for almost three decades. While many firms had trouble attracting new money to alternative investment solutions, Blackstone contradicted the trend with $1.7 billion in inflows. Notably, the decision to buy Capital Trust’s asset management platform shows the increased multi-convergence discussed in so many of my recent posts.

On the private equity side, revenues for Blackstone increased year on year with growing performance fees and investment income. Overall carrying value of assets was up over 7% for the quarter with appreciation across all contributed funds. Stronger market conditions drove the segment’s public holdings up 15.1% for the quarter, while private holdings increased 3.2%.

Significant Performance Fees were driven by BCP IV and the more recent BCP VI and Blackstone Energy Partners (“BEP”), both now above their hurdle rates to generate performance fees. Year-to-date total capital invested and committed reached $3.7 billion. Some $285 million of capital were returned to investors at an average of four and a half times multiple of the invested capital.

BEP, the firm’s first ever dedicated energy fund, completed fundraising with a total of $2.4 billion. Also, $1.4 billion raised for a new tactical opportunities fund commenced active marketing.

For real estate, strong performance fees pushed up revenues for the quarter materially compared to last year, reflecting the continued improvement of operating fundamentals across Blackstone’s office, retail and hotel portfolios.

Real estate investments of $34 billion were up 5% for the quarter and 12% year-to-date, similar to debt strategy drawdown funds. Hedge funds ($800 million) were up 6.2% for the quarter and 14.6% year-to-date. Significant performance fees generated by BREP V, VI, VII and EUR III, with $19 billion of invested equity, and year-to-date total capital deployed and committed reached $6.3 billion.

Fundraising for Blackstone’s most recent global real estate fund, BREP VII, has been completed at $2.2 billion in additional commitments in Q3, bringing total fund commitments to $13.3 billion. Furthermore, the firm announced the agreement to acquire the asset management platform of Capital Trust ($2.4 billion in AUM), a publicly traded real estate finance and investment management company. Blackstone will take over management of CT Investment Management Co LLC, as well as Capital Trust’s co-investment in the fund.

HFS revenues more than doubled from last year, driven by 17% fee-earning AUM growth and fund performance. Composite returns were up 3.3% net for the quarter and up 6.2% net year-to-date. As of quarter-end, $18.5 billion or 77% of Incentive Fee-Earning AUM was estimated above their respective High Water Mark and/or Hurdle, up from $9 billion or 41% last quarter.

Fee-Earning AUM grew 9% during the quarter, and 17% over the last twelve months, driven by strong net inflows primarily in customized and commingled investment products and market appreciation. Fee-Earning net inflows were $1.7 billion for the quarter and $3.2 billion year-to-date, not including October 1st subscriptions of $0.5 billion.

In Blackstone’s credit business, revenues improved due to a significant increase in performance fees. Total AUM grew 8% for the quarter , up 62% from last year to a record $55 billion. New product introductions, strong net inflows, market appreciation and the Harbourmaster acquisition in the first quarter all contributed to these record numbers.

Despite the volatility in the markets, fund returns held up. Hedge Funds were up 6.1% net for the quarter and up 9.2% net year-to-date, Mezzanine Funds saw 7.7% and 17.7%, respectively. Rescue Lending Funds added 4.6% net for the quarter and 12.4% to date.

$722 million of capital invested in the firm’s credit-oriented drawdown funds brought year-to-date total capital invested to $2.5 billion. During the quarter, Credit launched its third closed-end fund, raising $835 million of AUM, and priced two new CLOs totaling over $1 billion of AUM. Blackstone credit net flows over the last twelve months totaled $19 billion.

Financial Advisory revenues were down 29% from the same quarter last year, primarily from delays in deal closings, particularly in the strategic advisory business. Despite the slow quarter, activity levels remained largely in line with 2011. Restructuring maintained its top ranking for worldwide completed restructuring in the Thomson Reuters league tables for the first nine months of 2012; the pipeline remains steady across a broad set of mandates with revenue up year-to-date.

Blackstone Advisory Partners’ 2012 backlog was described as healthy against a difficult backdrop of M&A, as deal activity remained in line with 2011 levels and several high profile mandates recently announced.

Blackstone described Park Hill’s pipeline as solid, with challenging fundraising market conditions driving demand for placement services; revenues were down slightly year-over-year, reflecting timing activity levels.

Assets Under Management grew to a record $169 billion (fee earning), up 27% in the last twelve months, as $43 billion of gross inflows more than offset $11 billion of capital returned to investors during the same period. Including commitments, not yet earning fees, Blackstone’s Fee-Earning AUM would have been $179 billion, or 34% higher year-over-year.

Total AUM increased 30% to a record $205 billion, up 8% from last quarter driven by strong organic net inflows and market appreciation across all asset management segments.

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(c) Enskat Associates 2012