Despite missing on both the top and bottom line estimates analysts had for its second projected for its second quarter earnings, The Blackstone Group L.P. (NYSE:BX) was up by more than 2.5% in afternoon trading. The company’s second quarter Economic Net Income (ENI) of $0.43 missed the mark by $0.07, while revenues of $1.2 billion came in $110 million lighter than expectations, and were 46.4% lower on a year-over-year basis. According to the company the disappointment of its financial results was rooted in the lower appreciation of Real Estate holdings and the assets which are part of the fund in Blackstone Capital Partners V (BCP V). Performance fees and investment income both saw respective slides of 59% and 94% on a year-over-year basis to $569.7 million and $10.8 million. Consequently, expenses also dropped by 24% to $673.2 million during the quarter.
Among the hedge funds that we track, a total of 42 had invested $485.65 million in The Blackstone Group L.P. (NYSE:BX) at the end of March as opposed to 39 firms with $352.27 million in the company’s shares at the end of last year. While the invested amount increased nearly 38% during the first trimester, The Blackstone Group L.P. (NYSE:BX)’s stock price appreciated by just over 15%, so there was clear bullish sentiment among the smart money concerning the stock. Nor have they been disappointed in their increasing investments, as shares have gained over 9% since the end of March.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 139% over the last 34 months and outperformed the S&P 500 Index by 81 percentage points (see the details here).
As far as insider trading is concerned, no insider purchases have been detected in The Blackstone Group L.P. (NYSE:BX) so far this year, while prominent insider sales include a liquidation of about 2.0 million shares by COO Hamilton James during March and a sale of about 342,000 shares by Vice Chairman Tom J. Hill. It should be noted that insider sales provide a much weaker signal than insider purchases.
Let us move on to a more in-depth analysis of the hedge fund activity surrounding The Blackstone Group L.P. (NYSE:BX), before we pass a verdict on the company.
How are hedge funds trading The Blackstone Group L.P. (NYSE:BX)?
At the end of the first quarter, a total of 42 of the hedge funds tracked by Insider Monkey were long in this stock, compared to 39 at the end of the fourth quarter. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly.
According to hedge fund intelligence website Insider Monkey, Robert Joseph Caruso‘s Select Equity Group had the largest position in The Blackstone Group L.P. (NYSE:BX), worth close to $91.5 million, comprising 0.8% of its total 13F portfolio. Coming in second was Thomas E. Claugus of GMT Capital, with a $60.7 million position; 1.5% of his fund’s 13F portfolio was allocated to the stock. Similar peers with shared optimism contain Kieran Goodwin’s Panning Capital Management, Martin Hughes‘ Toscafund Asset Management, and Julian Robertson‘s Tiger Management.
As one would reasonably expect, key money managers were leading the bulls’ herd. The aforementioned GMT Capital assembled the most valuable position in The Blackstone Group L.P. (NYSE:BX). Panning Capital Management and Tiger Management’s holdings were also newly initiated in the first trimester. Other funds with new positions in the stock were Robert Raiff’s Raiff Partners, and Jim Simons’ Renaissance Technologies.
Had The Blackstone Group L.P. (NYSE:BX)’s stock slid in light of disappointment in earnings, it would have provided an entry point, but the current momentum could be dangerous if the company’s assets continue to depreciate. We wouldn’t advise investors to jump into the company right away, despite positive hedge fund sentiment.