We have initiating our coverage on
The Blackstone Group LP
) with a long-term 'Neutral' recommendation. The company's
diversified revenue mix and footprints, continuously falling
expenses along with steady growth in assets under management
(AUM) will likely supplement future growth. However, we remain
concerned about the impact of a volatile capital market and slow
realization of performance fees.
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Blackstone is an asset manager of alternative investments and a
provider of financial advisory services. Founded in 1985, the
company has offices globally. Further, the company has been an
In the past few years, Blackstone has completed the acquisitions
of GSO Capital Partners, Harbourmaster and Vivent Inc. Further,
in September 2012, the company signed a deal to acquire Capital
Trust. We believe that the company will continue with its
inorganic growth strategy to further strengthen its top line.
Blackstone has strong organic growth prospects. We believe that
the company's diversified products and revenue mix will enable it
to adapt easily to the changing needs of the clients. Further,
given Blackstone's superior position in the alternative
investments space, we anticipate continuous AUM growth and
consequent improvement in its top line.
At a time when most of the industry peers like
Franklin Resources Inc.
), among others, are facing increased expenses, Blackstone has
been witnessing decline in total expenses without resorting to
any cost reduction initiatives. We believe improving operating
efficiency would aid bottom-line growth in the upcoming quarters.
On the flip side, Blackstone's asset management operations mainly
depend on the commitments from the investors of its alternative
investment funds. During the financial crisis, the company's
financials deteriorated due to the low level of new commitments
as the investors were shying away from market linked investments.
Further, once the financial reform laws related to capital
markets are implemented, they would limit the ability of
Blackstone to raise funds from banking institutions.
Further, approximately 56% of Blackstone's total revenue in 2011
was generated from management and advisory fees. The increased
dependence on one revenue source could adversely impact the
company's financials in the near term, if there is any change in
the managed assets, regulatory changes or a slowdown in business
Blackstone currently retains its Zacks #2 Rank, which translates
into a short-term Buy rating.