Shares in Blackstone, the private equity giant that floated on the New York Stock Exchange at the peak of the debt market boom last year, plunged amid fears that some of its majorinvestors may renege on promises to inject money into the company.
Analysts have become increasingly nervous that some of the private equity industry's limited partners – which include pension funds and other institutional investors as well as rich individuals – will not be able to make good on the capital calls demanded of them, after suffering losses elsewhere amid the credit crisis.
That concern spilled over in discussions with Blackstone yesterday, as the company announced a $509.3m (£323m) net loss for the three months to the end of September, and warned that the economic downturn was taking a toll on its portfolio of companies and on its hedge funds business.
Limited partners typically inject money into a private equity firm regularly over a period rather than in one go. Even though Blackstone went public, it maintained its limited partnership structure.
The company said that its limited partners have made funding commitments that are legally enforceable and that there would be "onerous consequences" for those that did not pay up. Under persistent questioning by analysts, who feared Blackstone could become embroiled in legal disputes, executives said they did not foresee the issue becoming significant.
After a boom-time spending spree – in which Blackstone took over companies as diverse as Hilton hotels, Biomet, the maker of artificial hips, and the Orangina drinks company – the company has found that its investments have tumbled in value. It has written down the value of a third of its private portfolio of companies, it admitted yesterday, and said that it recently assembled their chief executives for a second "recession summit". The first, at the end of 2006, came up with contingency plans to keep the companies financially sound even if sales and profits slump.
"The recession will be steeper and slower to recover than we thought back in 2006," Tony James, Blackstone's senior managing director, said yesterday. He said he expected the economy to continue to deteriorate for another six months. The $509.3m loss compared with a $299.2m profit in the same period last year. Blackstone shares were off 14 per cent in lunchtime trading and have now lost more than three-quarters of their value since the company floated in June 2007.Reuse content