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Blackstone credit and retail lines drive narrow profit beat

Tan KW
Publish date: Fri, 19 Apr 2024, 05:45 PM
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Blackstone Inc. collected more fees from big retail funds and credit strategies during the first quarter, compensating for the slower pace of deal exits.

Distributable earnings increased 1% from a year earlier to $1.27 billion, or 98 cents a share, the world’s biggest alternative-asset manager said Thursday in a statement. That was 2 cents more than the average estimate of analysts surveyed by Bloomberg.

The pace of cashing out of deals in private equity and real estate slowed during the quarter, crimping the amount of profit available to shareholders. Would-be buyers remained on the sidelines as higher interest rates increased borrowing costs.

Investment banks are looking for signs of a thaw in the dealmaking climate, and investors are impatient for firms to return cash. Markets need to “heal more” before deal exits pick up, Blackstone President Jon Gray said in an interview.

The firm took in less in new money from investors than analysts expected.

Shares of New York-based Blackstone fell 3% to $120.18 at 10:14 a.m. in New York. The stock has slumped 8.2% this year, trailing publicly traded US rivals Apollo Global Management Inc., KKR & Co. and Carlyle Group Inc.

Blackstone, whose assets under management climbed 7.1% from a year earlier to $1.06 trillion, is a major bellwether for the health of financial markets. It’s a buyout giant and the world’s largest owner of commercial real estate.

Fee-Related Earnings

Blackstone’s asset growth, as well as performance gains for key retail funds, helped boost fee-related earnings by 12%, mitigating the slow spell for deal exits.

The firm is a dominant player in funds tailored to individuals in an industry that has historically focused on reaching the biggest institutions. Blackstone took in $8 billion through wealth channels in the first quarter, including $6.6 billion for funds designed to continuously invest individual money.

Still, the asset manager faces growing competition for the money of affluent investors. The fate of Blackstone’s big real estate fund for wealthy individuals is closely watched in finance after the fund enforced limits on withdrawals for months with more investors seeking cash.

Redemption demands on the Blackstone Real Estate Income Trust fell below a key threshold earlier this year, meaning the trust could return as much as investors wanted to withdraw. After returns thinned out in recent years, the fund collected incentive fees for the first quarter since late 2022.

The firm’s credit fund for individuals took in incentive fees as well.

Blackstone’s credit and insurance arm, a key source of financing to myriad industries, had the biggest increase in inflows of all its businesses. That helped boost the unit’s fee-related earnings by 25%, making it the best-performing segment by that measure.

“I think we’re going to grow, probably not as fast as we did back in 2021,” Gray said in a separate interview Thursday with Bloomberg Television. He said he expects the firm will hire more people than a year ago with the growth of businesses such as credit.

That unit can reap bigger debt payments from borrowers when interest rates are elevated. But higher rates are a headwind for other key business units, limiting valuations and making borrowing more costly.

Gray, 54, signaled that the Federal Reserve may not cut interest rates as quickly as investors had hoped. This week, Fed Chair Jerome Powell signaled that policymakers will wait longer than anticipated to begin easing monetary policy, with inflation remaining stubbornly above the central bank’s target.

“The path of travel is downward,” Gray said, “but the pace of disinflation is slower.”

He added that he still believes the Fed will begin to cut rates this year. Meanwhile, the firm isn’t waiting for an “all clear sign” to invest.

Blackstone ended a pause in growth investing by backing drive-through coffee chain 7 Brew Coffee. And in major bets on housing, it announced plans to take private rental-housing operator Tricon Residential as well as Apartment Income REIT Corp.

 


  - Bloomberg

 

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