UPDATE 1-BofA cuts profit estimates on private equity firms

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July 7 (Reuters) - Banc of America Securities cut its earnings estimates and price targets on private equity firms Blackstone Group (BX.N) and Fortress Investment Group LLC (FIG.N), citing continued challenging market conditions.

BofA slashed its second-quarter earnings estimates for Blackstone by 12 cents to 5 cents a share, and for Fortress by 4 cents to 11 cents a share. It also cut its price target on Blackstone to $21.3 from $22.5 and on Fortress to $20.1 from $21.

"New financial sponsor deals continue to be light as are deal exits... One bright spot for the second quarter is industry hedge fund returns," analyst Michael Hecht said in a note to clients.

BofA chose Fortress over Blackstone in the near-term, saying that in the current scenario hedge fund earnings were likely to hold up better than private equity and new deals. Fortress' earnings mix is about half from its hedge fund business against 15 percent to 20 percent for Blackstone, the brokerage said.

However, the brokerage said that in the long term, private equity was a good bet.

"We remain positive on the private equity business long term on favorable macro trends including strong demand for less correlated asset classes like alternatives driving continued strong pace of capital raise and a still favorable outlook for PE returns the next 3-5 years," Hecht said.

Fortress closed at $11.45 and Blackstone at $17.23 Thursday on the New York Stock Exchange. (Reporting by Varsha Tickoo in Bangalore; Editing by Jarshad Kakkrakandy; )