Blackstone’s Credit Arm Is Now Top Business, Fueling Profits
(Bloomberg) -- Blackstone Inc. posted an increase in third-quarter profit as its credit arm was boosted by an influx of investor cash and became the firm’s biggest business by assets.
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Distributable earnings climbed 5.5% to $1.28 billion from a year earlier, buoyed by its lending arm, according to a statement Thursday. That profit measure amounted to $1.01 a share, beating the 91-cent average estimate of analysts surveyed by Bloomberg.
The credit and insurance arm took in $21.4 billion of flows during the three months ended Sept. 30, accounting for more than half of what Blackstone collected from all of its businesses during the period.
Shares of Blackstone climbed 6.4% to $170.16 at 9:36 a.m. in New York.
Credit comprised $354.7 billion of Blackstone’s $1.1 trillion of assets at the end of the quarter, edging out real estate as the biggest unit. The firm also decided to categorize a portion of the real estate lending business under credit.
The credit arm’s strong showing helped the firm overcome subdued performance in private equity and real estate.
“We like having a diversified business,” President Jon Gray said in an interview.
The rise of credit underscores a push by the biggest alternative-asset managers to become financial superstores. The transformation has made them look more like banks and provided some relief during a challenging stretch for their private equity businesses.
The stock has climbed 22% this year through Wednesday, trailing competitors Apollo Global Management Inc., KKR & Co. and Ares Management Corp.
Lofty Prices
Buyout rainmakers have been tiptoeing back to the deal table, but many have struggled to sell at the lofty prices they anticipated.
At Blackstone, realizations remained muted in key business lines during the third quarter, as the firm had signaled last month. Distributable earnings fell 11% in private equity and 3% in real estate.
A property slump and high costs of debt continued to weigh on the real estate sector. But redemptions slowed during the third quarter for the firm’s marquee Blackstone Real Estate Income Trust, down substantially from their peak, while investments into the fund have ticked up since Oct. 1.
“If current trends hold, we’re moving toward positive net flows in BREIT,” Gray said.
The investment powerhouse reached the $250 billion milestone for assets managed for individuals and bank channels. Corporate private equity and infrastructure posted the highest gains in the period, helping the firm to notch the highest fund appreciation in three years.
Blackstone, the world’s largest alternative asset manager, is the first of such major firms to report financial results. A tentative deal recovery and uncertainty over a close presidential race looms large over the industry this earnings season.
The divided populace in the US will likely result in “pretty thin margins” in the upcoming election, he added in a separate interview with Bloomberg Television. Investors will need to keep in mind that candidates’ election rhetoric could diverge from the policy actions and political compromises that will follow, according to Gray.
“Investors have to sort of modulate what will ultimately happen versus what’s happening right now in the heat of an election,” he said.
(Updates shares in fourth paragraph and adds quotes from Jon Gray in final two paragraphs)
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