28 January 2014 Brokers. Asset Managers & Exchanges Alternative Asset Manager Initiation Earnings variability greater than peers: However, with fewer, but larger, funds than peers, and more concentrated portfolio positions (and also more flexible investing mandates), we expect the long-term earnings profile to have more peaks and valleys than peers. Over the long-term, we think the firm is likely to continue to generate outstanding IRRs, which should enable fund raising to remain healthy (e.g. the recently oversubscribed $17.5bn Fund VIII). However, we see the firm entering a materially lower DE period over 2014-16 (Figure 4), as the capacity to harvest investments from legacy funds begins to wane over the next 12-18 months, while the giant Fund VIII will be early in its investment period. This dynamic is a key pillar of our Hold rating for now. The Blackstone Group (BX)-1Nell diversified and with a leadership flair Founded by Chairman & CEO Steve Schwarzman and Pete Peterson in 1985, the firm's roots are in business advisory and buyout investing, which quickly grew much more substantially into private equity. In contrast to APO (and also KKR) the investing style tends to be more conservative with less concentrated bets (though plenty of caveats), and BX' advisory foundation has generated a more #partnershipcoriented style with its portfolio companies. Historically, the firm has been more equity focused and this expertise was leveraged into other businesses, including the now larger real estate segment. However, BX' credit expertise improved substantially with its well-timed acquisition of a credit fund manager (GSO) in 2008 with BX successfully leveraging its capabilities and growing the unit to $63bn in AuM from less than $10bn in 2008. A good balance of risk and growth: In our view, BX is in a very good position to continue leveraging its capabilities and leading positions in private equity, real estate, credit, and alternative investme