Blackstone Inc (BX.N) reported a significant 39% decline in second-quarter distributable earnings due to a downturn in asset sales, dampening the celebration of a major milestone. The firm achieved a historic feat by becoming the first manager of alternative investments, including private equity and real estate, to amass an impressive $1 trillion in assets.
Blackstone Reaches $1 Trillion Asset Milestone
In the quarter, Blackstone managed to raise an impressive $30.1 billion in new capital, pushing it past its biggest rival, Brookfield Asset Management Ltd (BAM.TO), which has $825 billion in assets. However, the earnings announcement led to a 3% drop in Blackstone’s shares during pre-market trading, as investors focused on the downturn in earnings.
The distributable earnings, which represent the cash used for paying dividends to shareholders, decreased to $1.2 billion from nearly $2 billion compared to the previous year. This resulted in distributable earnings of 93 cents, only slightly higher than the average analyst estimate of 92 cents, as compiled by Refinitiv.
The decline in earnings was particularly evident in Blackstone’s net profit from asset sales, which plummeted by a staggering 82% to $388.4 million from $2.2 billion in the year-ago period. The company faced headwinds in the form of higher interest rates, sticky inflation, and ongoing economic uncertainty, which continued to weigh on its merger-and-acquisition activity. A significant portion of the reduced asset disposals originated from Blackstone’s real estate unit, where net profit sank by 94%. Additionally, the credit division experienced a decline of 46%.
Despite the overall challenges, Blackstone’s private-equity business experienced a notable 20% growth in performance fees. This growth was driven by secondary share sales of Blackstone’s stake in London Stock Exchange Group (LSEG.L) and Gates Industrial Corporation (GTES.N).
However, when compared to the benchmark S&P 500 index (.SPX), Blackstone’s corporate private-equity funds appreciated by 3.5%, falling short of the index’s impressive 8.3% growth. The private credit funds gained 3.3%, while hedge fund assets saw growth of 1.9%. Opportunistic real estate funds, on the other hand, remained flat.
Under generally accepted accounting principles (GAAP), Blackstone’s net income stood at $601.3 million, marking a significant improvement compared to a net loss of $29.4 million previously. This turnaround was attributed to a rebound in revenue from performance fees and principal investments.
Despite the challenges faced, Blackstone still holds an impressive $195 billion of unspent capital, demonstrating its robust financial position. Furthermore, the company declared a quarterly dividend of 79 cents per share.
As Blackstone continues to navigate the changing economic landscape and face the impacts of higher interest rates and inflation, investors and analysts will keep a close eye on the firm’s strategies to maintain its position as a leader in the world of alternative investments. The achievement of reaching $1 trillion in assets remains a significant milestone, but the company will need to address the challenges in asset sales to maintain its growth trajectory in the long term.