Blackstone/Fortress: Fortress Investment Group and Blackstone are private equity firms in the public eye. Both went public in 2007 in high-profile, over-priced IPOs. Both have since been beaten heavily down. But with a recovery of sorts under way, their third-quarter earnings underline the larger Blackstone's apparently superior ability to diversify its business and keep investors on side.
Fortress shares listed in February 2007, peaked later that year and fell 97 per cent to their lows in December last year. They have since risen fourfold, to trade at about a quarter of the IPO price. Blackstone’s stock, listed in June 2007, has followed a similar but less extreme trajectory as credit, the life-blood of private equity deals, has collapsed and stabilsed. It now trades at about half the IPO price.
On Friday, though, the two diverged. With earnings reports out early in the day, Blackstone’s stock closed up about 7 per cent, while Fortress’s stock was down by about 10 per cent.
One reason is simply that Blackstone appears to be performing better. For instance, it sold four private equity portfolio companies at a decent profit, filed for two initial public offerings and intends on taking six more companies public over the next year. For Fortress, RailAmerica was the only meaningful sale in the quarter.
Blackstone is also more diversified. Aside from private equity, it has a large real estate investment business. Its credit and marketable securities division manages a whopping $53bn under headings from credit hedge funds to funds of funds. It also has revenue coming in from its advisory business. Fortress only has private equity and hedge funds, and both areas are smaller than Blackstone’s.
Steve Schwarzman’s Blackstone has also got ahead of Fortress in keeping investors informed. Its earnings reports are more detailed and easier to follow than they used to be. Fortress’ statements are less helpful. Aside from a lower level of detail they don’t, for example, show consecutive quarters side-by-side.
Fortress’ investors have asked for more clarity, which the company said it will give from the next quarter. In the meantime, investors have to make judgements based on what they can see. And for now, Blackstone appears to be the stronger survivor.
