Blackstone: from landlord to lending officer

Blackstone may already be your landlord. It would like to be your loan officer next. On Thursday, the world’s largest alternative assets manager, best-known for its real estate business, reported first-quarter results.

Profits were as desultory as expected amid depressed public and private market valuations. Overall assets under management grew less than $20bn in the first three months of the year, leaving Blackstone just shy of the mythic $1tn mark. Cash earnings fell 37 per cent year over year. It slashed the quarterly dividend by roughly the same amount.

Investment groups are trying to deploy cash quickly in order to take advantage of bargains. Blackstone brass assured the market that its vast property portfolio had little remaining exposure to empty office towers. Intriguingly, they later described the turmoil in the regional banking industry as a “golden moment”. 

Private credit — lending that comes from dedicated funds rather than banks — poses a significant opportunity. Regional financial institutions are watching deposits flee. Blackstone’s credit group already manages nearly $300bn. It thinks it can expand.

Blackstone noted that regional banks were important intermediaries for autos, home improvement and equipment, and potential sources of funds. Capital could come from life insurers and other institutions willing to shift allocations away from public to private fixed income products.

The group also emphasised that it merely managed third-party insurance assets, and was itself not an insurer*. This is an attempt to draw a sharp contrast with rivals Apollo and KKR.

Both Wall Street and Washington now ponder whether banks that take deposits are really the best allocators of capital given the inherent mismatch between long-term assets and short-term liabilities. Firms such as Blackstone may be eager to get into credit intermediation, but their higher cost of capital requirements, relative to banks, would have implications for economic growth.

Regardless, the era of the almost free bank deposit may be over. This seismic change creates enormous credit opportunities for fund-based institutions — money markets, mutual funds and private capital general partnerships. As Blackstone crosses the $1tn AUM threshold and charges straight towards $2tn it will be judged less on its fundraising prowess and more on how it finds opportunities for excess return.

*This article has been amended since initial publication to clarify that Blackstone is not an insurer.