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Blackstone: Masters of the Universe feel humility

A year ago, wagering that Blackstone would join the $1tn-in-assets club in 2022 would have offered even odds. That, as with a few bets last year, would have lost money. On Thursday, Blackstone reported assets under management of $975bn at the end of 2022, up less than $100bn from 2021. Assets expanded by $260bn in that dream year.

After years of envious admiration for private capital, public markets called time on the bull run. Despite public debt and equity market indices each falling around a fifth in 2022, Blackstone’s private portfolio did hold up, at least according to their own marks. Its real estate funds returned at least seven per cent last year, Blackstone reported.

Markets knew better. Blackstone’s shares dropped nearly 40 per cent last year. The firm’s valuation for years had soared on the strength of its unstoppable growth. That narrative changed in 2022, punctuated by December disclosures that Breit, a real estate investment aimed at wealthy individuals, faced an elevated level of redemptions from investors.

Blackstone executives on Thursday repeatedly accused the financial media of hyping the significance of those redemptions. Still, for the first time in a long time, Blackstone sounds defensive.

Amid the turmoil at Breit, the terms of what perhaps could be described as a stabilisation financing are notable. The University of California pension fund has recently committed $4.5bn to shore up Breit. UC, a longtime Blackstone backer, has committed to hold its investment for six years. UC however did so by securing a minimum return of 11.25 per cent. Blackstone itself has pledged its own resources to backstop that return.

Blackstone can earn plenty of performance fees if Breit prospers. Its historic Breit returns suggest that its guarantee to UC is realistic. Still, it is interesting to see its leaders Steve Schwarzman and Jon Gray having to make economic concessions to attract flagship capital.

Despite far weaker performance fees, overall distributable (cash) earnings per share at Blackstone in 2022 still rose nearly a tenth. The implied trailing stock price multiple over a year has thus fallen from 25 times to 18 times even as Blackstone shares have rallied a fifth so far in 2023. A little humility to go with the hunger should prove a good thing.

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