The world’s largest alternative asset manager sent the strongest signal yet that dealmaking is coming back.
Blackstone Inc.’s distributable earnings surged 48% in the third quarter, fueled by a burst of investment exits from its private equity arm, the firm said Thursday.
Distributable earnings, or profit available to shareholders, jumped to $1.89 billion, or $1.52 a share, beating the $1.22 average estimate of analysts surveyed by Bloomberg.
“The deal dam is finally breaking,” President Jon Gray said in an interview.
Blackstone, which oversees $1.2 trillion, capped its fourth consecutive quarter in which inflows exceeded $50 billion. The credit and insurance business, the firm’s largest by assets under management, dominated on that front.
The firm’s significant presence in private credit exposes it to scrutiny and shifting investor sentiment in that market.
Gray joined other private-credit executives in pushing back on recent comments by JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who suggested that recent bank losses from subprime auto lender Tricolor Holdings portend wider problems.
“When you see one cockroach, there are probably many more,” Dimon said last week, a remark that some nonbank rivals perceived as a slight.
Tying a few troubled financings led by banks to providers of private credit seems like a stretch, Gray said.
“We don’t really understand that connection,” he said. “They all feel pretty idiosyncratic.”
AI Boom
Blackstone more than doubled its haul from selling investments in the third quarter compared with a year earlier. It also took three companies public.
The money manager, the first among its biggest peers to report quarterly results, is the largest owner of commercial real estate, a credit giant and a major hedge fund allocator.
Its private equity arm’s string of exits mitigated muted returns in real estate. The rebound signals that an era of slumping valuations and higher financing costs, which kept buyout dealmakers on the sidelines, is receding. An artificial-intelligence boom and expectations that the Federal Reserve will continue to cut interest rates are fueling optimism.
“The cost of financing and more availability of capital is allowing the system of capital to move much faster,” Gray said.
Lower interest rates are also a double-edged sword for Blackstone, reducing its ability to charge borrowers more on floating-rate loans.
“As base rates come down and as spreads tighten, some of the very high returns that were achieved being a senior lender in private credit, that’s harder to do achieving mid-teens returns,” Gray said in a separate interview on Bloomberg TV.
Still, Gray said that the premium that private credit investors tend to get over the liquid markets will endure.
Blackstone’s highest-performing strategy during the third quarter was infrastructure, which delivered a 5.2% return. The firm has bet big on data centers, energy and the grid — areas that could be the “picks and shovels” that drive AI.
Unlike the dot-com boom of the 2000s, “the companies who are leading this era right now, for the most part, are highly profitable, large-cap companies with pristine balance sheets,” Gray said.
At the same time, the arrival of transformative technology “invariably causes some enthusiasm,” he said, warning that “there may be some pockets of that starting.”
Shares of New York-based Blackstone dropped 6.2% this year through Wednesday, compared with the 14% advance for the S&P 500.
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