Blackstone CEO argues we've seen 'cyclical bottom' for firm

Blackstone's profit fell in the fourth quarter from a year earlier.

Jan 26, 2024 - 08:30

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Blackstone CEO argues we've seen 'cyclical bottom' for firm

Stephen Schwarzman is a high-profile figure in the private investment world as the chief executive of Blackstone, the world’s biggest alternative investment manager.

When Blackstone went public in 2007, I asked a successful hedge fund manager what he thought about investing in the shares. His response: “Would you want to buy when Steve Schwarzman is selling?” referring to the CEO’s investment prowess. Schwarzman sold some of his shares in the IPO.

For 11 ½ years, my friend was right. The stock ended 2018 about 4% below its IPO price. But since then, it’s been a rocket ride higher. Blackstone shares generated an annualized total return of 33% for the last five years. That compares to 15% for the S&P 500.

Of course, that's not to say Blackstone's stock escaped the post-easy money bear market unscathed. Despite a nice rally last year, shares are still 18% below 2021's high.

Perhaps that will change in 2024. Blackstone's CEO, Steve Schwarzman, certainly seems optimistic.

Blackstone CEO and co-founder Steve Schwarzman.
NurPhoto/Getty Images

Q4 Earnings were a mixed bag

Blackstone has operations in real estate, private equity, infrastructure, and credit (loans) that are among the best in its class – if not the best. It has more than $1 trillion under management.

To be sure, the firm did encounter some turbulence in 2022-23 when it blocked withdrawals from its Blackstone Real Estate Investment Trust (BREIT), a non-tradable REIT available to individual investors.

Shareholders wanted to flee the fund as commercial real estate values dropped. Presumably, Blackstone would have had to liquidate valuable assets to fulfill all the redemption requests.

But Blackstone said Thursday that redemption requests have eased, shrinking more than 50% in December from the third quarter. In addition, the firm expects to accommodate all of BREIT investors’ redemption requests this quarter “if current trends continue.”

In its fourth-quarter earnings report, Blackstone announced that its profit fell to $151.8 million, or 20 cents a share, from $557.9 million, or 75 cents a share, a year ago.

The slumping commercial real estate market sparked the decline. Blackstone’s two principal real estate strategies suffered between 3.8% and 4.6%.

However, distributable earnings, which can be given to shareholders, registered $1.4 billion, or $1.11 a share, up from $1.33 billion, or $1.07, a year earlier.

The latest distributable earnings were the largest in six quarters, Schwarzman said in the company’s earnings call. And the $1.11 figure beat analysts’ forecast of 96 cents, according to Bloomberg.

Blackstone raised $52.7 billion in funds last quarter, particularly in the credit sector, as high interest rates pushed borrowers to non-bank lenders. That boosted the firm’s assets under management, which climbed to $1.04 trillion as of year-end from $974.7 billion a year ago.

Schwarzman sees better days in 2024

The CEO expressed satisfaction with the latest results and a positive outlook for the future. “I believe we'll look back at 2023 as the cyclical bottom for our firm,” he said.

Blackstone suffered from limits on sales of its assets, as high interest rates discouraged buyers from paying up. Many asset purchasers borrow money to buy the assets, so higher rates increase their payback costs.

Still, Blackstone made several sales in the fourth quarter, Schwarzman said. He pointed to strength in Blackstone’s credit, infrastructure, private equity, and life sciences divisions.

Schwarzman claimed that Blackstone has superior data for investing compared to competitors. Blackstone sees consumer price inflation now running below the Federal Reserve’s target of 2%.

That’s because its extensive housing holdings lead it to believe that the government is overestimating shelter costs. The official inflation reading registered 3.4% in December.

“The U.S. economy has changed,” Schwarzman said. “There’s a resilient, though decelerating economy that’s consistent with a soft landing. [Our companies are doing well with their top and bottom lines.]”

Blackstone is ready to put money to work, Schwarzman said. “We have almost $200 billion in dry powder. Our investment capacity is bigger than any other company in the world.

The author owns shares of Blackstone.

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