Blackstone Inc., grappling with higher interest rates and stung by a pullback in dealmaking, reported a 12% decline in quarterly profit available to shareholders.
Distributable earnings for the third quarter totaled $1.21 billion, or 94 cents a share, missing the $1.01 average estimate of analysts surveyed by Bloomberg. That was roughly in line with Blackstone’s second-quarter profit, which was the lowest in two years.
The firm, which oversees $1.01 trillion, is the first major US alternative asset manager to report third-quarter results. The returns laid bare the consequences of the Federal Reserve’s campaign to hike interest rates in its battle against inflation.
Would-be buyers are hesitant to do deals as debt costs rise, and private equity firms are holding on to assets rather than selling them in a shaky market. Blackstone’s fee-related earnings fell 5% as the company took in less from cashing out of deals. The amount of money it deployed for new deals dropped 60%.
“There’s uncertainty around rates and inflation,” Blackstone President Jon Gray said in an interview. “All of that contributes to an environment of uncertainty, and that reduces transaction volume.”
The war between Israel and Hamas has created more upheaval in markets already roiled by Russia’s invasion of Ukraine early last year, casting further doubt on whether private equity dealmaking will pick up after a dismal stretch.
Blackstone shares fell 4.1% to $98.10 in early New York trading at 7:48 a.m.
Shares of Blackstone, which joined the S&P 500 last month, rallied 38% this year through Wednesday.
As long as the conflict in the Middle East doesn’t spread into a global war, rates will likely remain the biggest cause of uncertainty, said Gray, 53. Market dislocations will create new opportunities for Blackstone to put its $200 billion of dry powder to work, he added.
US private equity dealmaking in the third quarter fell to its lowest point since 2020, according to PitchBook, a reversal of fortune for an industry that amassed vast wealth during a prolonged era of cheap debt and rapid growth. In the past week, Wall Street’s biggest banks collectively posted their seventh straight quarter of declining investment-banking fees.
At Blackstone, fundraising — a major driver of future fees — ebbed. The firm took in net flows of $16.2 billion in the three months through September, a drop of about 50% from a year earlier. In the decade since the 2008 financial crisis, private equity firms benefited from investors’ hunger for better-performing alternatives to stocks and bonds. Now, higher rates are providing other ways to generate returns without needing to lock up money in illiquid assets.
While rising rates pressured valuations of Blackstone’s opportunistic real estate, with holdings depreciating 2% over the quarter, they also buoyed the firm’s credit returns. That business added the most money, drawing from insurance clients and individual investors who also sought exposure to Blackstone’s giant credit fund.
In another bright spot, infrastructure investments appreciated by 11% after one key holding — data center operator QTS — rallied.
This article was provided by Bloomberg News.