Blackstone reaches $1 trillion in assets; Second quarter earnings decline

NEW YORK (Reuters) – Blackstone Inc (BX.N) said on Thursday it has become the first manager of alternative investments such as private equity and real estate to reach $1 trillion in assets, a significant milestone accompanied by news its second-quarter distributable earnings fell 39% amid slumping asset sales.

Blackstone met its $1 trillion target three years ahead of schedule after setting in 2018 to reach that level by 2026. Its biggest rival, Brookfield Asset Management Ltd (BAM.TO), has $825 billion in assets.

The moment was poignant for Blackstone CEO Stephen Schwarzman, who co-founded the New York-based company in 1985 with only $400,000 in capital.

“Our horizons are accelerating. We are never satisfied with our accomplishments,” Schwarzman said on an earnings call with analysts Thursday.

He estimated the size of his industry at $12 trillion in assets and said he saw opportunities for growth in credit, private insurance, infrastructure, energy transition, life sciences, Asia and wealth management for wealthy individuals.

However, in the second quarter, Blackstone’s distributable earnings, which represent cash available to pay dividends to shareholders, fell to $1.2 billion from about $2 billion a year earlier. That resulted in a distributable dividend of 93 cents, compared to the average analyst estimate of 92 cents, as compiled by Refinitiv.

Blackstone said its net profit on asset sales fell 82% to $388.4 million from $2.2 billion in the year-ago period, as rising interest rates, steady inflation and economic uncertainty weighed on M&A activity.

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Blackstone shares fell 0.5 percent to $107.67 Thursday afternoon in New York. It’s up 45% year-to-date, outperforming the 18.5% rally in the S&P 500.

more profitable

Despite Blackstone’s growth, it is dwarfed by BlackRock (BLK.N), which Blackstone helped launch in 1988 before splitting off. BlackRock has become the world’s largest asset manager with $9.4 trillion in assets.

However, this comparison does not tell the full story of Blackstone’s performance. Its focus on alternative assets, which are mostly illiquid investments, has limited its client base because parent and high-profile investors don’t have access to them as easily as stocks and bonds from traditional managers like BlackRock.

But alternative investments are usually more profitable for investors and their managers. This is reflected in Blackstone’s market capitalization of $132 billion, about $20 billion more than BlackRock.

However, Blackstone and its peers are trying to narrow the asset gap with traditional managers by creating products for individual and wealthy investors, expanding beyond their usual base of institutional investors such as pension funds, insurance companies and sovereign wealth funds.

New Bank Partnerships

Blackstone began partnering with banks whose ability to lend was crippled by the regional banking crisis in the United States, which prompted some depositors to flee and institutions to adopt more conservative credit policies.

Blackstone President Jonathan Gray said Blackstone has agreed or is in the process of finalizing five banking partnerships worth $6 billion that will include areas of lending such as home improvement, auto financing and renewable energy.

Net profit at Blackstone’s real estate unit fell 94% in the second quarter as limited divestitures, such as a $3.1 billion warehouse sale to Prologis Inc (PLD.N), generated much less cash than a year ago.

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Gray said the “negative sentiment” among investors about commercial real estate that has affected BREIT, Blackstone’s flagship real estate investment fund, should abate.

The company has been exercising its right to block investor withdrawals from BREIT since November, after they crossed a predetermined threshold. Refund requests are gradually decreasing, she said, though not enough for Blackstone to lift the restrictions.

A bright spot in the quarter was Blackstone’s private equity business, which saw performance fee growth of 20%, driven by secondary equity sales of the company’s stake in London Stock Exchange Group (LSEG.L) and Gates Industrial Corp. (GTES.N).

Under Generally Accepted Accounting Principles (GAAP), Blackstone had net income of $601.3 million, compared to a net loss of $29.4 million due to recovery in revenue from performance fees and principal investments.

Blackstone also had about $195 billion in unspent capital and declared a quarterly dividend of 79 cents a share.

(This story has been corrected to say BlackRock, not Blackstone, in paragraph 9)

Additional reporting by Shibuiki Ojo in New York. Editing by Greg Romeliotis and Cynthia Osterman

Our standards: Thomson Reuters Trust Principles.

Chibuike reports on large US-based private equity firms, including Blackstone, KKR, Carlyle, and Apollo. Previously at Bloomberg News, he holds master’s degrees in journalism from New York University and Edinburgh Napier University. Contact: 332-999-6154

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