Blackstone falls short of its $1-trillion ambition

One year after Blackstone CEO Steve Schwarzman told investors the company would reach $1-trillion in assets under management in 2022, it is shy of that mark.

The world’s largest alternative asset manager commanded $975bn at the end of last year, up from $951bn in the prior quarter but short of the milestone its senior leaders once thought was just around the corner. The target was originally set for 2026, but was accelerated amid a market boom.

Now the private equity giant is feeling the weight of higher interest rates on its valuations of some past investments and confronting an era of investor caution as it tries to gather cash for new bets. President Jon Gray said he was not disappointed at missing the target, expressing confidence that investors will entrust more money if the firm delivers. “I’m most focused on returns,” he said in an interview. “Inflows follow performance.”

The tougher environment dragged down distributable earnings 41% to $1.3bn as the firm’s dealmakers slowed sales in the three final months of 2022, according to the quarterly earnings report on Thursday. That amounted to $1.07 a share, topping the average analyst estimate of 94c .A dividend of 91c a share was declared, short of Bloomberg’s forecast of $1.02.

INDUSTRY BELLWETHER

Blackstone — a heavyweight investor in everything from consumer brands to transmission lines to student dorms and apartments — is first among the largest private equity firms to report results for the period. That makes it a bellwether for the broader industry and economy.

The Federal Reserve’s battle with inflation is giving individuals more investment options, such as products that track rising interest rates. Economic uncertainty is limiting institutional appetite for private equity investments that can take years to mature and be hard to sell.

Blackstone took in $28bn of net inflows in the quarter, compared with $147bn a year earlier. Redemptions from the iconic $69bn Blackstone Real Estate Income Trust (Breit) contributed to outflows. The firm limited redemptions from that vehicle in December to prevent forced selling. Changes to the timing of how Breit books profits in 2022 also made the decline in distributable earnings steeper.

Real estate bets took hits in the fourth quarter, with opportunistic wagers depreciating 2% and core investments down 1.5%. Still, the firm held about $371bn in so-called “perpetual” pools, such as Breit, up 18% from a year earlier. Another bright spot was corporate private equity, which rose 3.8%, more than other investment units.

Individual investors remain an important driver of growth, Gray said. Assets managed for individuals and private bank channels totalled $239bn at the end of 2022, up 25% from a year ago, executives said.

Distributable earnings for the full year rose 7% to $6.6bn. The firm carved out $1.8bn from successful investments for dealmakers and executives. That is 16% more than in the prior year.