Release Date: October 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Blackstone Inc (BX, Financial) reported strong third-quarter results with distributable earnings of $1.3 billion, marking the highest fee-related earnings in two years.
- The company has significantly increased its investment pace, deploying $123 billion over the last 12 months, which is double the prior year comparable period.
- Blackstone Inc (BX) is the largest data center provider in the world, with a recent $16 billion acquisition of AirTrunk, enhancing its global presence in the Asia-Pacific region.
- The firm has seen a robust reacceleration of sales in 2024, raising $21 billion in the private wealth channel year-to-date through September, nearly double the amount raised in the same period last year.
- Blackstone Inc (BX) has a strong position in the private credit market, managing the largest third-party private credit business in the world with $432 billion in assets, up 20% year over year.
Negative Points
- Disposition activity remains limited in the current environment, with a nearly three-year period of lower activity levels in the broader capital markets.
- The firm's secondaries business has shown a slowdown in performance, with recent returns below hurdle rates, impacting overall fund performance.
- Operating expenses have increased due to third-party servicer fees, placement fees, and initiative-driven consulting spends, impacting overall profitability.
- The firm faces challenges in overcoming back book headwinds, which are running at about 10% of fee-related performance metrics.
- Despite strong fundraising, the FRE (Fee-Related Earnings) growth outlook is tempered by back book pressures and the need for sustainable organic net flow rates.
Q & A Highlights
Q: Can you comment on the opportunity in the insurance platform, particularly regarding strategic partnerships and third-party accounts?
A: Jonathan Gray, Chairman of the Board, noted that the insurance business has grown to $221 billion, up 24% year-on-year. The dialogue with insurance companies is strong, with strategic partnerships taking time to develop. The SMA side is seeing more insurance companies recognizing the benefits of investment-grade private credit, particularly in asset-based space. The optimism around this space is high, and the open architecture model is beneficial.
Q: Could you expand on the increase in operating expenses this quarter and the outlook for FRE growth in 2025?
A: Michael Chae, Chief Financial Officer, explained that the increase in operating expenses was due to third-party servicer fees, placement fees, and initiative-driven consulting spends. Adjusting for these, the underlying growth in OpEx is close to last year's low-double digits. For 2025, while it's early to provide specifics, the firm feels good about stability and potential upside in margins.
Q: How do you view the asset-backed opportunity relative to the direct lending market?
A: Jonathan Gray highlighted that the asset-backed world, including commercial real estate and other sectors, is estimated at $25 trillion, with private players currently holding a small percentage. This market is much larger than the leveraged finance world, and Blackstone expects significant growth in this area, driven by institutional interest and strategic partnerships.
Q: What is your outlook for Blackstone being a net buyer or seller of real estate assets over the next 12 to 18 months?
A: Jonathan Gray stated that Blackstone has been a net buyer recently, with improving sentiment in the market. The firm expects to continue investing, particularly in logistics, rental housing, and data centers, while also anticipating more realizations as the market recovers.
Q: How do you see the impact of declining base rates and tighter spreads on the credit business?
A: Jonathan Gray noted that while absolute returns may face pressure as base rates and spreads decline, the focus is on maintaining a premium over liquid fixed income. Blackstone expects to continue delivering attractive returns in both non-investment grade and investment-grade private credit, supporting ongoing investor interest.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
