Blackstone Inc. Reports Q4 2022 Performance
January 27, 2023 | S&P Capital IQ
Blackstone Inc.’s full-year profits fell more than 70% in 2022 from a record high the previous year as the world’s largest alternative asset manager navigated what CEO Stephen Schwarzman described as “the most challenging market environment since the Global Financial Crisis.”
But with a record $186.6 billion in dry powder filling Blackstone’s coffers, including $86.7 billion targeted to private equity strategies, Schwarzman remained optimistic about the firm’s ability to turn adversity to its advantage.
“We have more capital than almost any other financial investor in the world to buy assets opportunistically when values are low and liquidity is scarce. We have lived through many cycles and have always emerged stronger, growing the firm to greater heights,” the executive said on the firm’s fourth-quarter 2022 earnings call.
Short of $1 trillion AUM goal
Blackstone reported $557.9 million in net income for the quarter, or 75 cents per share, down 60.1% from the fourth quarter of 2021. Full-year net income in 2022 was $1.7 billion, or $2.36 per share, down 70.2% from the firm’s 2021 fiscal year.
The firm eked out a small increase in management fees in 2022 and was able to boost payouts to shareholders despite the macroeconomic turbulence, results Schwarzman said were “proof of concept” for Blackstone’s underlying business model, which is a mix of private equity, real estate, hedge fund and credit strategies. Fee-related earnings totaled $4.4 billion in 2022, up 9% year over year, and a 7% year-over-year increase in distributable earnings brought the 2022 total to $6.6 billion.
After raising $226 billion from investors in 2022, including $43.1 billion in the fourth quarter, the firm’s total assets under management reached a record $974.7 billion, up 11% year over year but short of the $1 trillion target management predicted one year ago. “The fundraising environment remains challenging,” according to COO Jonathan Gray, who said the firm’s private credit, insurance and infrastructure strategies were seeing the most demand from institutional investors.
Private equity performance
The corporate private equity portfolio finished 2022 with 0.6% loss in value despite reversing two consecutive down quarters with a fourth-quarter gain of 3.8%.
Gray said revenue for Blackstone’s corporate private equity operating companies grew 14% in the fourth quarter compared to the same quarter a year ago, crediting the firm’s focus on “high-quality businesses with pricing power” for those results.
“In private equity, our concentration in the travel and leisure, energy and energy transition areas have had a meaningful impact on our results. We largely avoided unprofitable tech and did nothing in crypto,” Gray said. Gray said investors have so far committed $15 billion to the firm’s new flagship private equity fund, Blackstone Capital Partners IX, launched in 2022. The executive predicted the fund would end up roughly similar in size to its $26.2 billion predecessor.
Blackstone REIT fallout
In December 2022, the firm was forced to gate redemptions from nontraded real estate investment trust Blackstone Real Estate Income Trust Inc., or BREIT, after customer withdrawal requests exceeded quarterly limits, potentially tarnishing the fund’s reputation with retail investors and setting back efforts to raise more capital from wealthy individuals. Gray said the firm was still working through a backlog of customer withdrawal requests from BREIT but predicted outflows would slow and reverse as economic conditions improve. BREIT’s assets under management totaled $68.5 billion at the end of the fourth quarter of 2022, down 2.5% from the end of the third quarter.
At the start of the year, UC Investments, which manages investments for the University of California, bought $4 billion worth of BREIT shares and announced a plan to buy $500 million more in shares the day before Blackstone reported fourth-quarter 2022 earnings. Gray said the investment would be a boost of “psychological confidence” for retail investors in the fund.
Rents across the portfolio were up an average of 10% in November 2022 while remaining 20% below market, on average, indicating plenty of headroom for growth, Gray said. A decline in construction starts on logistics properties and rental housing, key components of the BREIT portfolio, were brightening the fund’s outlook, the executive added.