The biggest private equity firms have not enjoyed a successful second-quarter. Three of the biggest firms, Blackstone Group, Carlyle Group and Apollo Global Management, all reported drops in economic net income. Majority of the bad results are down to bad run by the US stocks, which have falls for the first time since 2012, but there were also unique drivers behind the results.
The three firms have been announcing their second-quarter in the past few days. On Wednesday, Carlyle said its economic net income for the period stood at $180 million. This is a 43% decline for the same period in 2014.
Apollo also saw a decline, but not as steep as Carlyle. Its economic net income for the second-quarter stood at $155 million, which meant it fell by a quarter from last year.
Blackstone had already announced its results earlier this year. For the firm, the second-quarter decline in economic net income by 62%. From the big firms, KKR happened to score a better result during the second-quarter.
Reason Behind Bad Results
As mentioned above, the US stocks have not fared well in the past months. The Standard & Poor’s 500 index of large US stocks reported its first quarterly decline since the final quarter of 2012. The index fell by 0.2% and the decline caused some headaches for the firms.
In addition, the three private equity firms have had to deal with unique circumstances. Carlyle told on Wednesday that its result was largely down to declining fortunes in its hedge funds, international real estate as well as its energy assets.
Apollo claimed its weak results were down to drop in sales. Private equity firms have not found it easy to exit from companies as valuations are high and the stock market is unpredictable. Blackstone, especially, has taken a hit because the profits from its assets have suffered. Bloomberg reported how the firm’s assets such as Travelport Worldwide and Brixmor Property Group saw a drop of 13% to 18% during the second-quarter.
Increase in Assets
Both Carlyle and Apollo did manage to grow their asset value. The overall private equity fund value, with real assets, hedge funds and buyouts included, did increase by around 3% for both firms. This was still a smaller increase to asset value last year, as both firms grew their portfolio value by 5% in the second-quarter of 2014.
Despite the decrease in economic net income, the results announced by the firms managed to beat analysts’ expectations. Furthermore, the Financial Times noted that a majority of Carlyle’s assets are over three years old. This suggests the firm “has plenty of assets left to realise”.
Carlyle and Apollo also have quite a bit of ‘dry powder’ left to invest. Carlyle had nearly $63 billion, with $26 billion in the private equity funds. Apollo had around $28 billion left to invest.
It’ll be interesting to see how the firms fare during the third-quarter. The stock market has continued to be turbulent in the recent weeks, so firms need to continue to be smart with their investments.