So, the cat’s been out of the bag for awhile now: private-equity is seriously roughing it, with KKR again delaying its IPO and Carlyle warning its investors not to expect the bounteous, frothy returns they had come to know and love to resume for a good while. All in all, not terribly shocking. Still, as private-equity giant Blackstone Group announced its third-quarter loss, we were rather impressed during the conference call to hear president Tony James go so far as to identify the exact nadir of the downfall of leveraged finance: he says it took place on Oct. 10. “I may be wrong, but I believe the credit markets have bottomed out and will slowly recover,” he adds. Worth reading are WSJ’s minutes from the call, which run the gamut from Blackstone’s labor situation to how many companies lost value in its portfolio since the credit crisis started.

The financial crisis is hitting private equity, and hitting it hard: Blackstone Group today announced a loss in its third-quarter earnings announcement. Its economic net income was a loss of $509.3 million, compared to a profit of $99.9 million in the second quarter and $299.2 million a year ago.

Still, there were some high points. The firm did appreciably increase its assets under management to $116.28 billion, an 18% boost from $98.20 billion a year ago. Its merger advisory business appears to be healthy, increasing 91% from a year ago to $160.7 million.

Deal Journal is live-blogging two calls: the press call at 9:30 a.m., which will be attended by ink-stained wretches like ourselves, and the full conference call at 11 a.m. You can dial into the latter at (888) 713-4211; Blackstone’s full results are available on its Web site, here.

9:25 a.m.: We notice that conference call hold music usually comes in two varieties: florid, sweeping Romantic symphonies, and blaring dance-hall electronica. Blackstone’s call provider has ably straddled that line with a strange Muzak version of a Daftpunk-like group. It could easily have find a place in the score for “Beverly Hills Cop.”

9:32: Peter Rose introduces the assembled dignitaries: president Tony James, senior managing director for public markets Joan Solotar, CFO Laurence Tosi. All will remain silent except for James.

9:33: James provides the highlights. They are mostly in the press release, so we won’t retread that ground.

9:34: Private equity declined because of a lower carrying value of the companies in the funds, which led to lower fees. Investors in Blackstone’s PE funds are committed for the life of the funds. Real estate private equity also had negative revenues.

9:36: How did the hedge fund business do? “Negative revenues of $48 million,” which reflects declines in values across asset classes in the quarter. If you’re wondering how a firm can have negative revenues, it’s largely due to Blackstone’s bete noire, mark-to-market accounting.

9:37: Corporate restructuring, which advises on bankruptcy, had revenues of $161 million.

9:38: “We believe our balance sheet can withstand an extremely challenging environment,” James explains.

9:39: 75% of portfolio investments are running ahead of last year, in terms of Ebitda. 60% of Blackstone’s debt has no appreciable covenants, and the first appreciable maturities are in 2013.

9:40: Blackstone is in the “enviable” position of being a buyer of assets. If they do say so themselves.

9:40: Hedge funds have had a terrible year, but the majority of Blackstone’s funds have outperformed the industry and peers, James says.

9:41: Blackstone’s assignments include being the global coordinator for AIG. They’re growing in London and Hong Kong. Restructuring is great. James talks up the clean tech fund and infrastructure fund.

9:42: The first question: how many companies are in the portfolio, and how many did Blackstone have to write down the value of since the crisis began? James says Blackstone has 40 companies in its portfolio. Year to date, it has taken writedowns on a third of the private portfolio — the private portfolio is quite a bit fewer than 40 companies, by the way — and the rest were either up or flat. That doesn’t include public companies.

9:44: Has Blackstone had any pushback from the pension fund industry? James says no issue at all, and cites the closing of Apria Healthcare’s buyout as a “flawless” example of same. Blackstone’s average holding period in its investments is in the three to six year range, James says. The average investment in its current portfolio comes from the 2005 fund and is only 20 months old, so there has not been much “harvesting” of returns.

9:46: A question about the drop in leveraged loan prices. James says the loan prices have been marked down somewhat, but he notes that Blackstone got good prices on buying back that debt. He says the firm has “a very positive carry” on the interest differential, so there aren’t significant markdowns on that. Blackstone is still buying up old leveraged loans, James says.

Continue reading on WSJ.com

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