Citi Initiates Coverage On Blackstone Group At Buy With $23.50 PT

Citi initiates Blackstone Group BX at Buy with a conservatively-built $23.50 sum-of-the- parts 12-month target & Medium risk rating. Established in 1985, BX is a NY based $140B in AUM publicly traded alternative Asset Manager partnership, including $44B in Private Equity; $33B in Real Estate, $35B in Hedge Funds; $31B in Credit strategies + advisory business, with strong LT track records across businesses. Key reasons to own BX include: still attractive valuation despite recent run up; Economic Net Income should step function in 2011 & 2012 as key funds cross high water marks, Citi looks for ENI to nearly double in 2012 over 2010; strong play on secular up-cycle for alternatives; favorable feedback loops for monetizations and segment growth against building global economic recovery; and robust business diversification should temper operating risks. Based on “burn down” analysis of PE and RE businesses, or no new business beyond current AUM – Citi gets ~$4.25 per unit. Such math suggests investors are either undervaluing the business in total, or still get free embedded options on BX's ability to raise additional PE and RE funds over time and/or generate performance fees on $66B in combined HF/Credit AUM. BX closed Wednesday at $17.56