Blackstone misses target to manage US$1t by end-2022

A YEAR after Blackstone Inc chief executive officer Steve Schwarzman told investors the firm would reach US$1 trillion in assets under management in 2022, it is shy of that mark.

The world’s largest alternative asset manager commanded US$975 billion at the end of last year, up from US$951 billion in the prior quarter, 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 is confronting an era of investor caution as it tries to gather cash for new bets.

President Jon Gray said he was not disappointed over missing the target, and instead expressed confidence that investors will entrust more money if the firm delivers.

“I’m most focused on returns,” the 52-year-old said in an interview. “Inflows follow performance.”

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The tougher environment dragged down distributable earnings 41 per cent to US$1.3 billion as the firm’s dealmakers slowed sales in the three final months of 2022, according to the company’s quarterly earnings report on Thursday (Jan 26). That amounted to US$1.07 per share, topping the average analyst estimate of 94 cents.

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 from the period. That makes it a bellwether for the broader industry and the economy.

The New York-based firm grew rapidly in an era of low interest rates as pensions, endowments and wealthy savers flocked to the promise of higher returns from private equity and real estate. But 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 can be hard to sell. 

Blackstone took in US$28 billion of net inflows in the quarter, compared with US$147 billion in the year-earlier period.

Redemptions from the iconic US$69 billion 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 bets depreciating 2 per cent and core investments down 1.5 per cent.

Still, the firm held about US$371 billion in so-called “perpetual” pools such as Breit, up 18 per cent from a year earlier.

Another bright spot was corporate private equity, which appreciated by 3.8 per cent, more than other investment units.

Individual investors remain an important driver of growth, Gray said. Assets managed for individuals and private bank channels amounted to US$239 billion at the end of 2022, up 25 per cent from the year-ago period, executives said.

The company’s stock climbed 20 per cent in January through Wednesday, after having fallen 43 per cent – more than double the drop of the S&P 500 – last year.

Distributable earnings for the full year rose 7 per cent to US$6.6 billion. The firm carved out US$1.8 billion from successful investments for dealmakers and executives – 16 per cent more than in the prior year. Carried interest is a long-standing perk of working in the industry.

“You don’t get any carry if you don’t sell things and deliver for customers,” Gray said. BLOOMBERG