Blackstone (NYSE:BX) $US122.33

Blackstone traded lower overnight (-5.7%) despite delivering a broadly strong March quarter, with the market choosing to focus on softer real estate assets under management and ongoing noise around private credit rather than the bigger picture. BX remains the world’s leading alternative asset manager, still raising huge amounts of capital, still growing earnings, and still sitting on significant dry powder to deploy when conditions improve.

1Q Highlights:

• Assets under management $1.30 trillion, +12% y/y, estimate $1.3 trillion

• • Real estate assets under management $315.28 billion, -1.5% y/y, estimate $321.41 billion – this is what the market focussed on
  • Private equity assets under management $429.91 billion, +16% y/y, estimate $427.97 billion
  • Multi-asset investing assets under management $101.36 billion, +15% y/y, estimate $97.9 billion
  • Credit and insurance assets under management $457.46 billion, +18% y/y, estimate $455.3 billion
• Distributable income/share $1.36 vs. $1.09 y/y, estimate $1.34
• Total dry powder $213.3 billion

At the headline level, the result was better than expected. Distributable earnings rose to US$1.76bn, or US$1.36 per share, ahead of consensus, while fee-related earnings increased to US$1.55bn, or US$1.26 per share. Total AUM reached US$1.3 trillion, up 12% year-on-year, supported by almost US$69bn of inflows during the quarter.

The weakness in the share price was about the quality and mix of the result. Real estate AUM of US$315bn was below expectations and down modestly on the prior year, while BCRED redemptions and softness in parts of private credit remain areas investors are watching closely. That said, Blackstone’s credit and insurance platform still attracted a record US$37bn of new capital, while private equity also had a strong quarter with more than US$20bn of inflows.

Our view is that the market reaction looks overly focused on the slight softness in Real estate.  Real estate is clearly still working through a difficult period after the sharp rise in interest rates, and private credit is under the microscope given broader concerns around lending standards, software exposure, and liquidity. However, Blackstone is not a single-product business. Its scale, brand, distribution and breadth across private equity, real estate, credit, infrastructure and insurance remain key advantages, particularly in volatile markets.

Importantly, deployment and realisations are starting to move in the right direction. Blackstone deployed US$35.6bn during the quarter, while net realisations rose 26% year-on-year to US$448m. The group also finished the period with US$213bn of dry powder, giving it substantial flexibility to take advantage of dislocation across markets.

• We remain positive on BX, given its high gearing to long-term structural growth in private markets, benefits from institutional and retail allocations to alternatives, and has meaningful upside if transaction activity, IPO markets and real estate confidence improve. MM owns BX in the International Equities Portfolio.