Blackstone’s $1 Trillion Triumph Is Muted by Deal Slowdown

Blackstone Inc. has become the first private equity firm to manage $1 trillion, an accomplishment tempered by a dealmaking slump that weighed on second-quarter results.

(Bloomberg) — Blackstone Inc. has become the first private equity firm to manage $1 trillion, an accomplishment tempered by a dealmaking slump that weighed on second-quarter results. 

Distributable earnings, which measures profit available to shareholders, tumbled 39% to $1.2 billion, the lowest in two years. The 93 cent a share profit was 1 cent better than the average estimate of analysts surveyed by Bloomberg. The firm now oversees $1.001 trillion, up from $940.8 billion a year earlier.

Blackstone slowed the pace of doing new deals and cashing out of existing bets as more buyers and sellers struggled to agree on valuations for private assets. The results underscore that, for all its heft, the world’s largest alternative-asset manager isn’t immune to an industrywide dealmaking rut. 

The firm’s shares fell 2% at 9:39 a.m. in New York. The stock has surged 46% this year through Wednesday, outperforming the 19% advance for the S&P 500 as well as rivals KKR & Co., Carlyle Group Inc. and Apollo Global Management Inc.

Today, private equity firms that grew rapidly during a dealmaking boom and easy-money policies face more scrutiny from investors and regulators on how they will weather higher rates. That includes Blackstone, now the world’s largest owner of commercial real estate, a major hedge fund allocator and a giant lender in its own right. 

Read more: Blackstone’s $1 Trillion Mark Ushers In New Era of Buyout Titans

“There is more focus on us these days given our scale,” Blackstone President Jon Gray, 53, said in an interview. “Scale allows us to do large transactions.” It also gives the firm more visibility into the economy, he added. 

Inflation Ebbing

Wage and cost data from Blackstone’s portfolio companies, for example, suggest that inflation is “coming down probably more broadly than what other people are seeing,” Gray said. 

The market, too, is coming to recognize that inflation is under control as the Federal Reserve works to cool the economy, he said. 

Despite the slump in distributable earnings, a different measure of profitability improved in the second quarter. Fee-related earnings — the recurring profits that come from managing assets — climbed 12% from a year earlier, New York-based Blackstone said Thursday in a statement. The increase was fueled by fees from new funds, and a rally in equity markets helped boost asset values. 

Still, Blackstone is finding it harder to raise fresh cash from investors for new deals. Net flows for the second quarter totaled $17 billion, a 77% plunge from a year earlier.  

Gray told analysts Thursday that it expects its corporate private equity fund to close at the low $20 billion range, an acknowledgment that it would fall short of earlier ambitions.  

Read More: Blackstone Coming Up Short in Push for Record Buyout Fund  

The firm had previously said it planned to raise around $25 billion for the closely watched flagship fund. It has gathered some $17 billion so far.  

Credit was the biggest contributor to inflows, a reminder of how the firm is rising to become a bigger nonbank lender as it extends beyond its buyout roots. Credit products accounted for roughly half of gross inflows.

The firm’s credit pipeline swelled in the last quarter, Gray said earlier in an interview with Bloomberg Television. He sees signs of private equity dealmaking picking up, he said.

“The deal market feels like it’s unfreezing a bit,” Gray said.


(Updates share price in fourth paragraph and adds comments from President Jon Gray.)

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