Dealmaking at Blackstone Inc., the world’s largest alternative-asset manager, slowed down during a turbulent time when rising interest rates roiled markets, which contributed to a decrease in the company’s first-quarter profit.
According to a statement released by Blackstone on Thursday, the company’s distributable earnings decreased by 36% from the previous year to $1.25 billion, which is equivalent to 97 cents per share. It was better than the 94 cents that was the average estimate of the 16 analysts that Bloomberg polled. By increasing by 8% to $991.3 billion, assets under management have inched their way closer to the trillion-dollar mark.
Outside of the realm of equities and bonds, Blackstone has emerged as a formidable competitor and is now a dominant player. It is a dominant force in real estate transactions, take-privates, and buyouts. Now it must contend with the fact that rate hikes by the Federal Reserve are making it more difficult to reach agreements with other parties and bringing an end to a period of robust economic expansion.
According to comments made by President Jon Gray in an interview, “a slower deal environment is not a shock.” “Things are moving slowly because of the uncertainty.”
In the early morning hours of trading in New York at 7:15, the price of a share of Blackstone falls 1.1% to $91.52. Until Wednesday, the stock price has increased by 25% so far in 2018, far exceeding the gains made by competitors KKR & Co. and Apollo Global Management Inc.
When compared to the previous year, Blackstone’s dealmakers were more cautious about taking capital out of investments, which resulted in a 22% decrease in proceeds from sales. In addition to this, they lowered the rate at which they were making new bets by more than half.
The current state of the economy is putting investors’ appetite for risky strategies to the test, particularly those that are more difficult to trade and value than equities and bonds. The quarterly net inflows for Blackstone came in at $29.5 billion, which is down from the previous year’s figure of $39.9 billion.
Due to the successful conclusion of a massive fund targeting institutional investors, the company’s real estate division was the primary driver of net inflows throughout the period under review. This alleviated some of the suffering caused by an overdue inventory of redemptions from the $70 billion Blackstone Real Estate Income Trust. In recent months, the property fund for wealthy persons placed restrictions on redemptions as a response to the growing number of customers who attempted to withdraw their money.
Blackstone, the largest owner of commercial property in the world, reduced the valuation of some of its US offices during the quarter as a result of the continued reluctance of many employees to return to their places of employment in the wake of the epidemic. The company has been reducing its exposure to such assets, and it now considers offices located in the United States as less than 2% of its real estate portfolio, which is a significant decrease from the 61% share it held in 2007.
The company’s involvement in Corebridge Financial Inc. was a factor that reduced profits. In 2021, Blackstone acquired a minority investment in the insurance in exchange for securing a contract to manage an increasing portion of the insurer’s assets over the course of time. The price of Corebridge shares has decreased by 15% so far in 2018.
There was one business division that benefited from the rising interest rates. Bets placed by Blackstone on private credit provided a return of 3.4%, making them the best performers in the quarter.
Even though Blackstone backed a company that placed a losing bid for Silicon Valley Bank, Gray stated that the turmoil that followed the failure of three US regional lenders last month has created investment opportunities. Gray made this statement despite the fact that Blackstone backed the losing bid. As more financial institutions work to reduce the size of their balance sheets, Blackstone has been having discussions with smaller banks about the possibility of joining forces with them to provide loans.