Blackstone Group's asset management scale reaches $1 trillion, with second-quarter distributable income dropping by 39% to the lowest level in two years | Earnings Report Insights

On July 20th, before the U.S. stock market opened, Blackstone, the world's largest asset management group, announced its second-quarter performance.

According to the earnings report, as of the end of the second quarter, Blackstone's assets under management reached $1 trillion, which is basically in line with the market's estimated $1.01 trillion and higher than the $940.8 billion in the second quarter of last year. This also makes Blackstone the world's first private equity firm to manage $1 trillion in assets. As of the end of the second quarter, Blackstone's private equity assets were $295.29 billion, slightly higher than the market's expected $292.51 billion.

However, due to the sluggish primary market trading, Blackstone's total revenue in the second quarter was $2.35 billion, lower than the market's expected $2.41 billion. The capital inflow in the second quarter was $30.12 billion, significantly lower than the market's expected $39.05 billion. Blackstone's earnings per share in the second quarter were $0.93, slightly higher than the market's expected $0.92.

Due to a significant decline in asset sales from the real estate and credit businesses, the distributable earnings, which measure shareholders' profits, decreased by 39% year-on-year to $1.2 billion, the lowest in two years.

Specifically, due to rising interest rates, inflation, and continued economic uncertainty affecting its M&A activities, Blackstone's net profit from asset sales in the second quarter plummeted 82% from the same period last year to $388.4 million. The decline in net profit from asset sales was mainly due to the decline in net profit from the real estate and credit departments, which decreased by 94% and 46% respectively compared to the same period last year.

Despite the decline in distributable earnings, other measures of Blackstone's profitability improved in the second quarter. Revenue related to expenses (regular profits from asset management) increased by 12% year-on-year to $1.14 billion. This growth was driven by fees from new funds, and the rise in the stock market also contributed to this revenue growth.

Driven by the secondary sale of shares in the London Stock Exchange Group and Gates Industrial Corporation held by Blackstone, fee income from its private equity business also increased by 20%.

In addition, Blackstone's alternative asset management business performed well, despite being impacted by the industry downturn.

Blackstone stated that its private equity funds rose by 3.5% in the second quarter, which is lower than the 8.3% increase in the S&P 500 index. Specifically, its private credit funds rose by 3.3%, hedge fund assets rose by 1.9%, and real estate funds remained flat.

Blackstone also announced a quarterly dividend of $0.79 per share.

After the earnings report was released, Blackstone's stock price opened lower on Thursday, with a decline of up to 2% at one point, but the decline gradually narrowed, and it briefly turned positive during the trading session. In the afternoon, the decline narrowed to around 0.5%.

As of this Wednesday, Blackstone's stock price has risen by 46% year-to-date, outperforming not only the S&P 500 index but also other asset management companies.

Nowadays, large asset management companies like Blackstone face many risks in a higher interest rate environment: it is itself the world's largest commercial real estate owner, a major hedge fund allocator, and also has its own banking business.

Jon Gray, President of Blackstone, said:

Given our scale, we are now receiving more attention. Our size allows us to engage in large transactions, which also gives the company a better understanding of the economy.

Gray predicted that the pain of inflation has reached its peak and the year-long market stagnation may soon come to an end:

Wage and cost data compiled by Blackstone's investment portfolio department suggest that the scope of the decline in inflation may be broader than the market believes. As the Federal Reserve works to cool the economy, the market is also beginning to recognize that inflation is under control.

I believe the market has absorbed the impact of rate hikes and noted that trading activity may resume given the significant decline in US inflation in recent months.

The market will return to normal, and trading activity will also return to normal. As the economy slows down, the market may enter another period of stagnation, but we have already withstood the impact of inflation and largely weathered the impact of rate hikes.

Compared to 12 months ago, I feel better about the current market conditions.