Blackstone reports surge in inflows but warns of economic downturn
Blackstone Group, the world’s largest alternative asset manager, warns of a continued slowdown in economic activity as persistently high inflation forces the Federal Reserve to keep raising interest rates.
“The economy on the ground today is still quite healthy, but we are definitely seeing signs of a slowdown,” Blackstone Chairman Jonathan Gray told the Financial Times. “Because we view inflation as more rigid, particularly in the labor and housing markets, I think that will mean the Fed will try to do more and slow the economy further.”
An increasingly aggressive central bank also has Blackstone expecting a prolonged lull in deal activity from the record levels set last year, with Gray warning that they had “seen a significant reduction transaction activity”.
In second-quarter results released Thursday, Blackstone showed continued growth in assets under management as investors pile into private equity strategies, but it cut the value of some of its flagship private equity funds. , credit and real estate.
A total of $88 billion in new investor funds flowed into the New York-based investment group, taking its assets under management to a record $941 billion, a 38% increase from this year. time a year ago.
The increase in assets meant that Blackstone’s earnings and fee-based cash flow also remained near record highs despite a strong sell-off in stock markets at the start of the year.
Distributable earnings — a metric favored by analysts as a proxy indicator of overall cash flow — rose 86% to $2 billion from the same period last year, equivalent to $1.49 per share . These results narrowly exceeded analysts’ forecasts.
Inflows were the second highest of any quarter in Blackstone’s 36-year history, chief executive Stephen Schwarzman said in a statement.
During the quarter, Blackstone trimmed its $276 billion portfolio of corporate private equity investments by 6.7%, while some funds related to real estate and credit investments were also reduced.
Blackstone’s once-remarkable growth investment fund suffered the most severe drop in performance. The fund, launched in 2019 by Jon Korngold, a bawdy trader from rival General Atlantic, has seen nearly all of its investment gains wiped out. At the end of the quarter, the fund’s net internal rate of return was just 2%, down from 17% three months earlier.
The company’s portfolio of hedge fund investments and its stake in a major liquefied natural gas export terminal stood out for gaining in value.
Blackstone reported a net loss of $29 million on a GAAP basis, which represented unrealized investment losses attributable to its shareholders resulting from markdowns.
Although volatile markets have tested Blackstone’s investment skills, all of its major strategies, including its growth strategy, have attracted new investor funds. Blackstone raised $24.4 billion and $8.8 billion for new flagship funds in real estate and private equity, respectively.
It also attracted more than $15 billion in new money from wealthy investors who piled into the company’s perpetual funds — funds with no maturity or end date. Market volatility could dampen inflows from those investors, who have been the main driver of the company’s new assets in recent quarters, Gray warned.
“When you have this kind of volatility, it’s no surprise if you see flows moderating.”
Gray also left open the prospect that Blackstone would scale back its aggressive hiring plans to adjust to a more uncertain environment.
Blackstone’s workforce is expected to increase by more than 20% this year, but Gray said the company could stall its growth plans.
When asked if the group could slow down hiring, he replied, “Potentially yes. But we continue to grow.