Blackstone’s cash pile will buy only so much time

Pressed for time. Blackstone is grappling with a peculiar sort of funding mismatch. The investment shop managing more than $1 trillion says market ructions present acquisition and lending opportunities, but it is also selling less. Moreover, the growing likelihood that interest rates stay higher for longer threatens deal activity. If the dynamic persists, it will sharpen the divide between fund backers focused on profit and public shareholders benefiting from capital deployment.

The firm led by Steve Schwarzman has accumulated an impressive war-chest. Even as the U.S. Federal Reserve made borrowing costs pricier, Blackstone kept raising cash to invest, surpassing $200 billion. It more than doubled the amount invested in the first quarter from a year earlier. The upped pace shows in deals like the plan to buy Tricon Residential, an owner of apartment buildings and single-family homes.

It’s good news for Blackstone shareholders. Fees clients paid to manage their investments snapped a six-month losing streak. Money earned from the performance of so-called “perpetual” vehicles, or funds without an expiration date largely marketed to wealthy individuals, was 60% higher than the amount forecast by analysts, according to Jefferies. The profit helped push up what was available to be distributed to shareholders.

At the same time, however, an uptick in asset sales last quarter, when Schwarzman said the industry had exited its darkest days, resumed their downward march. The sum tumbled 16% from a year earlier, marking six declines in seven quarters.

This struggle speaks to an industry-wide problem. Private equity is demanding more capital from investors than it’s paying out, a multi-year trend only briefly reversed by a 2021 boom. The same is true in private credit, according to Barclays, where Blackstone is also a giant.

Schwarzman and his lieutenants are painting this as a boon. It’s time to acquire, when Blackstone is flush with cash and prices are depressed, but recovery can be seen on the horizon. The surprising stickiness of inflation, however, may keep interest rates elevated and delay the return of economic strength. The firm has proven its investment nous through previous gyrations. But because of how big Blackstone has become, the degree of difficulty is higher, as are the stakes.

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Blackstone said on April 18 that it had generated nearly $1.3 billion in earnings in the first quarter of 2024, using the alternative-asset management industry’s preferred measure which excludes unrealized gains from investments. The firm’s net profit from asset sales during the period fell 25% from a year earlier, to $293 million, resuming a string of declines that was briefly broken in the previous quarter. Capital deployed into new investments increased 126% year-over-year, to $24.5 billion. During the first three months of the year, Blackstone raised more than $8 billion from wealthy individuals, with more than 80% of the sum dedicated to funds without an expiration date.