Blackstone Credit and Retail Lines Drive Narrow Profit Beat

(Bloomberg) — Blackstone Inc. collected more fees from big retail funds and credit strategies during the first quarter, compensating for the slower pace of deal exits.

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Distributable earnings increased 1% from a year earlier to $1.27 billion, or 98 cents a share, the world’s biggest alternative-asset manager said Thursday in a statement. That was 2 cents more than the average estimate of analysts surveyed by Bloomberg.

Shares of New York-based Blackstone fell 2.1% to $120.49 at 7:50 a.m. in New York.

The firm’s shares slumped 5.9% this year through Wednesday, trailing publicly traded US rivals Apollo Global Management Inc., KKR & Co. and Carlyle Group Inc.

The pace of cashing out of deals in private equity and real estate slowed during the period, crimping the amount of profit available to shareholders. Would-be buyers remained on the sidelines as higher interest rates increased borrowing costs.

Investment banks are looking for signs of a thaw in the dealmaking climate, with investors impatient for firms to return cash. Markets need to “heal more” before deal exits pick up, Blackstone President Jon Gray said in an interview.

Blackstone, whose assets under management climbed 7.1% from a year earlier to $1.06 trillion, is a major bellwether for the health of financial markets. It’s a buyout giant and the world’s largest owner of commercial real estate. Increasingly, it’s also investing more for insurance companies and individuals.

Fee-Related Earnings

Blackstone’s asset growth, as well as performance gains for key retail funds, helped boost fee-related earnings by 12%, mitigating the slow spell for deal exits.

It was also the first quarter since late 2022 that Blackstone’s big real estate fund for individuals collected incentive fees, which are tied to performance thresholds. The firm’s credit fund for individuals took in those fees as well.

Blackstone’s credit and insurance arm, a key source of financing to myriad industries, had the biggest increase in inflows of all its businesses. That helped boost the unit’s fee-related earnings by 25%, making it the best-performing segment by that measure.

“There is a lot of momentum in credit,” Gray said.

That unit can reap bigger debt payments from borrowers when interest rates are elevated. But higher rates are a headwind for other key business units, limiting valuations and making borrowing more costly.

Gray, 54, signaled that the Federal Reserve may not cut interest rates as quickly as investors had hoped. This week, Fed Chair Jerome Powell signaled that policymakers will wait longer than anticipated to begin easing monetary policy, with inflation remaining stubbornly above the central bank’s target.

Read More: Powell Signals Rate-Cut Delay After Run of Inflation Surprises

“The path of travel is downward,” Gray said, “but the pace of disinflation is slower.”

He added that he still believes the Fed will begin to cut rates this year, but the firm isn’t waiting for an “all clear sign” to invest.

For example, Blackstone ended a pause in growth investing by backing drive-through coffee chain 7 Brew Coffee. And in major bets on housing, it announced plans to take private rental-housing operator Tricon Residential as well as Apartment Income REIT Corp.

(Updates with shares in third paragraph and line on rates in 12th.)

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