Blackstone’s profit falters as rising rates chill dealmaking
BLACKSTONE’S third-quarter profit faltered as wild markets and rising borrowing costs chilled the pace of dealmaking at the world’s largest alternative asset manager.
Distributable earnings in the quarter ended Sep 30 fell 16 per cent to US$1.37 billion, Blackstone reported on Thursday (Oct 20). That measure of earnings available to shareholders amounted to US$1.06 a share, beating analyst expectations of 99 US cents.
The results promise austere times for an industry that minted wealth and amassed reach across the economy during an era of low interest rates. Now, dealmakers are finding it harder to get cheap debt to grease returns or sell bets at profits. Banks are more cautious about providing buyout financing for fear they will lose money when they unload the loans to investors.
“In an environment like this, buyers, sellers and lenders pause, and deal volume slows until people find their footing,” Blackstone president Jon Gray said in an interview.
Blackstone deployed less money in the quarter than a year ago. Dealmakers also generated less from cashing out bets in markets roiled by the Federal Reserve’s push to curb inflation.
A rapid rise in interest rates and jittery markets ate into valuations. Blackstone’s net income fell by more than 99 per cent to US$2.3 million, reflecting writedowns on investments. One drag on profit was stock of public companies including insurer Corebridge Financial.
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Blackstone’s stock fell by more than 5 per cent in early-afternoon trading in New York.
Wide reach
Blackstone invests in everything from apartments to offices to warehouses to biotech businesses to power transmission projects. It manages US$950.9 billion in assets for pensions, endowments, insurers and individuals and has grown to be a bellwether of finance and the economy.
The shares had declined more than 35 per cent this year as of Thursday. Stocks of alternative-asset managers have fallen further than the S&P 500’s roughly 23 per cent slump.
The firm had net inflows of US$32.2 billion in the third quarter, down from some US$40 billion in the year-ago quarter. Its push to bring private equity beyond big pensions and institutions to smaller investors faces headwinds as retail investors seek more liquid investments.
“It’s not a surprise individual investors are focused on what is going on in the market and that impacts their behaviour,” Gray said.
Blackstone told analysts on Thursday that its giant real estate fund for smaller investors, the Blackstone Real Estate Income Trust, was designed to have cash and liquidity on hand to weather market volatility.
The firm has also been engineering ways to manage more of the money of insurers, in a bid to lock in permanent capital and generate steady streams of fees. This month, it announced a US$500 million investment in Resolution Life, which buys life policies, as part of a deal providing new assets to manage.
Among Blackstone strategies that declined in the latest quarter, opportunistic real estate, corporate private equity and so-called tactical opportunities investments depreciated. Private credit notched 3 per cent returns. Its hedge fund unit had gains, buoyed by quantitative and macro bets.
Gray said the US Federal Reserve’s push to tamp inflation will take time to work through the economy. He said the Fed will keep working and “allow the medicine to work through the system”.
The Fed’s moves are now being felt.
“I think inflation has reached the top,” he said in an interview with Bloomberg Television, adding that it would come down more slowly than people are hoping.
Blackstone is sitting on a record US$182 billion to invest in the market tumult. BLOOMBERG
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