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BlackRock reports private equity losses

Profits in the fourth quarter for the New York-based firm, which manages more than $1tn in assets, were hit especially hard by hedge fund and real estate losses.

New York-based asset manager BlackRock reported an 84 percent drop in profits for the fourth quarter, partly due to incurring more than $250 million in losses from hedge funds and real estate products.

The publicly traded firm posted net income for the quarter of $53 million compared to $322 million in the same period a year before, while assets under management dropped slightly to $1.31 trillion. Its $293 million in non-operating expenses for the fourth quarter includes investment losses of $124 million from seed and co-investments in hedge funds/funds of hedge funds (including the impact of distressed credit products), $91 million from real estate products and $35 million from private equity products.

“Without question, 2008 has been the most difficult market environment in memory, with many markets frozen and assets suffering extreme price declines,” Laurence D. Fink, chairman and CEO of BlackRock, said in a statement. “Management fees, performance fees and non-operating income have all suffered. All of our current seeds and co-investments have been marked to market, in some cases to levels below what cash flow analysis might suggest. It should be noted, however, that real estate and private equity markets typically lag public markets, and further declines might be expected in 2009.”

The news comes as other asset managers are preparing to release their earnings results over the next two weeks, with Northern Trust already announcing its net income up 174 percent in the fourth-quarter, while Janus Capital Group and AllianceBernstein posted profit reductions of 85 percent and 72 percent, respectively.

The Pension Benefit Guaranty Corporation (PBGC) recently hired BlackRock as one of three firms to manage $2.5 billion in funds that will be allocated to private equity and real estate.