(Bloomberg) — Blackstone Inc.’s first-quarter earnings fell as dealmaking at the world’s largest alternative asset manager slowed amid a turbulent period as rising interest rates roiled markets and the banking system.
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Distributable earnings fell 36% year over year to $1.25 billion, or 97 cents a share, New York-based company Blackstone said in a statement Thursday. That beat the 94-cent median estimate of 16 analysts polled by Bloomberg.
While assets under management didn’t surpass analysts’ forecast of $1 trillion, it still rose 8% to $991.3 billion.
Blackstone has become a dominant force in the financial universe outside of stocks and bonds. It’s a giant in take-privates, buyouts, and real estate deals. Now she has to grapple with how the Federal Reserve’s rate hikes are hurting business deals, driving up borrowing costs and ending a streak of rapid growth.
“A slower business environment is not a shock,” President Jon Gray said in an interview. “Given the uncertainty, progress is slow.”
Blackstone shares are up 1.2% to $93.73 as of 10:04 am in New York. The stock was up 25% this year through Wednesday, slightly outperforming peers KKR & Co. and Apollo Global Management Inc.
Blackstone’s dealmakers were more reluctant to pay out investments year-over-year, causing sales proceeds to fall 22%. They also slowed their pace of making new bets by more than half.
Economic uncertainty is testing investors’ appetites for strategies that are more difficult to trade and value than stocks and bonds. Blackstone had net inflows of $29.5 billion for the quarter, up from $39.9 billion a year ago.
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Its real estate division was the largest source of net inflows for the quarter, boosted by the closure of a huge institutional fund. That offset some of the pain caused by repayments from the $70 billion Blackstone Real Estate Income Trust. The real estate fund for high net worth individuals has restricted redemptions in recent months after more clients tried to exit.
The world’s largest commercial real estate owner, Blackstone, wrote down the valuation of some US offices during the quarter as many employees remain reluctant to return to work in the wake of the pandemic. The company has reduced its exposure to these properties and now counts U.S. offices as less than 2% of its real estate portfolio, down from 61% in 2007.
Across the company, fee-related income fell 9% for the quarter, and depreciation contributed to a decline in net income.
A drag on earnings was its investment in Corebridge Financial Inc. Blackstone acquired a minority stake in the insurer in 2021 in exchange for striking a deal to manage a growing portion of its wealth over time. Corebridge shares are down 15% this year.
One line of business benefited from rising interest rates. Blackstone’s private credit bets were the best performers for the quarter at 3.4%.
Gray said the uproar following the collapse of three US regional lenders last month created investment opportunities — even after Blackstone backed a firm’s losing bid for Silicon Valley Bank. Blackstone has been talking to small banks about co-lending with them as more look to slim their balance sheets.
The banks’ pullout will create a “golden moment” for lending and pave the way for Blackstone to offer more forms of financing, he told analysts.
Gray told analysts that Blackstone is interested in lending on assets like equipment and cars. He added that there is a greater opportunity for Blackstone to offer a form of lending backed by a pool of assets to other private equity funds.
In an interview with Bloomberg Television, Gray predicted that deals across the industry will pick up again by early 2024 at the latest.
–Assisted by Erin Fuchs.
(Updates stock movement in fifth paragraph and adds context from speaking to analysts.)
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