(Bloomberg) — Blackstone Corp.’s first-quarter profit slumped as dealmaking slowed at the world’s largest alternative asset manager in a turbulent period when rising interest rates rattled markets and the banking system.
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New York-based Blackstone said Thursday in a statement that distributable earnings fell 36% to $1.25 billion, or 97 cents per share, from a year earlier. That beat the 94 percent average estimate of 16 analysts surveyed by Bloomberg.
While assets under management failed to pass the $1 trillion mark that analysts expected, it still rose 8% to $991.3 billion.
Blackstone has grown to become a dominant force in the financial world outside of stocks and bonds. He is a giant in buy-outs, acquisitions and real estate deals. Now it must grapple with how Fed rate hikes derail deal-making, raise the cost of borrowing and end a period of rapid growth.
“The slower deal environment isn’t a shock,” Chairman John Gray said in an interview. “Things are slow given the uncertainty.”
Blackstone shares were up 1.2% at $93.73 at 10:04 a.m. in New York. The stock is up 25% this year through Wednesday, handily outpacing rivals KKR & Co. and Apollo Global Management Inc.
Blackstone’s dealmakers held back cash from investments compared to a year ago, resulting in a 22% drop in sales proceeds. They also slowed their pace of placing new bets by more than half.
Economic uncertainty tests investors’ appetite for strategies that are hard to trade and value them more than stocks and bonds. Blackstone had $29.5 billion in net inflows in the first quarter, down from $39.9 billion a year earlier.
Its real estate arm was the largest source of net inflows in the quarter, buoyed by the closure of a giant institutional fund. That offset some of the pain from accumulating recoveries from the $70 billion Blackstone Real Estate Income Trust. The property trust for wealthy individuals has restricted redemptions in recent months after more clients tried to get out.
Blackstone, the world’s largest owner of commercial real estate, wrote that some US offices evaluated during the quarter, as many employees continue to be reluctant to return to workplaces post-pandemic. The company is reducing its exposure to that real estate and now considers US offices to be less than 2% of its real estate portfolio, down from 61% in 2007.
Across the company, fee-related earnings were down 9% in the quarter, and write-downs contributed to lower net income.
One of the earnings drawbacks was its investment in Corebridge Financial Inc. Blackstone took a minority stake in the insurance company in 2021 in exchange for a deal to manage an increasing portion of its assets over time. Corebridge shares are down 15% this year.
Higher interest rates have benefited one business unit. Blackstone’s own credit bets were the top performers in the quarter, at 3.4%.
Gray said the turmoil following the collapse of three US regional lenders last month created investment opportunities — even after Blackstone backed a loss-making firm’s bid to buy a Silicon Valley bank. Blackstone has been talking to smaller banks about stepping in to lend alongside them as a further search to shrink their balance sheets.
He told analysts that the banks’ decline would create a “golden moment” for credit and pave the way for Blackstone to offer more forms of financing.
Gray told analysts that Blackstone is interested in lending against assets such as equipment and cars. He added that there was greater opportunity for Blackstone to provide some form of lending to other private equity funds secured against a pool of assets.
In an interview with Bloomberg Television, Gray predicted that deal-making across the industry will pick up by early 2024 at the latest.
– With the help of Erin Fox.
(Updates stock movement in fifth paragraph and adds context from communication with analysts)
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