Blackstone Inc. 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This annual filing covers Blackstone’s four businesses: Real Estate, Private Equity, Hedge Fund Solutions, and Credit & Insurance. The company reported as a corporation following its July 2019 conversion from a publicly traded partnership.
Financial and operating results
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Total revenue | $6.10 billion | $7.34 billion | Down 17% |
| GAAP net income | $2.26 billion | $3.87 billion | Down 42% |
| Net income attributable to Blackstone Inc. | $1.05 billion | $2.05 billion | Down 49% |
| Basic and diluted EPS | $1.50 | $3.03 | Down 50% |
| Operating cash flow | $1.94 billion | $1.96 billion | Down 1% |
| Fee-Earning AUM | $469.4 billion | $408.1 billion | Up 15% |
| Total AUM | $618.6 billion | $571.1 billion | Up 8% |
Revenue included $4.09 billion of net management and advisory fees, up 18%, and $2.00 billion of investment income, down 42%. Realized performance allocations rose to $2.11 billion from $1.74 billion, but unrealized performance allocations swung to a $384 million loss from a $1.13 billion gain. Other revenue was a $253 million loss, primarily reflecting foreign-exchange losses on euro-denominated bonds and cross-currency swaps.
Management’s non-GAAP measures showed stronger recurring and realized earnings: Distributable Earnings were $3.34 billion, up 16%; Fee Related Earnings were $2.37 billion, up 33%; and Total Segment Distributable Earnings were $3.68 billion, up 20%. These measures exclude or adjust items included in GAAP results and should not be treated as substitutes for GAAP net income or cash flow. Adjusted EBITDA was $3.85 billion, up from $3.29 billion.
Segment Distributable Earnings: Real Estate $1.68 billion, up 12%; Private Equity $1.20 billion, up 42%; Hedge Fund Solutions $549 million, up 22%; and Credit & Insurance $254 million, down 6%. Management attributed the decline in Real Estate investment income to lower unrealized appreciation and realized gains, while Private Equity benefited from higher realized gains and appreciation. Credit & Insurance had lower realizations.
Cash flow and liquidity: Investing activities used $167 million and financing activities used $2.24 billion. Cash and cash equivalents were $2.00 billion at year-end, and corporate treasury investments were $2.58 billion. Long-term notes totaled $5.73 billion; the $2.25 billion revolving credit facility had no borrowings outstanding, though a $10 million letter of credit reduced availability. Consolidated assets were $26.27 billion, liabilities $11.68 billion, and equity $14.53 billion; consolidated fund assets are not generally available for Blackstone’s corporate use.
Capital returns and commitments: Blackstone repurchased 9.0 million shares during 2020 for $474 million; $307 million remained under its $1.0 billion authorization at year-end. Dividends paid in respect of 2020 totaled $2.26 per share. The company stated an intention to distribute approximately 85% of its share of Distributable Earnings, subject to board discretion and liquidity needs. Blackstone and its general partners had $3.77 billion of remaining commitments to funds and other investments.
Material changes versus the prior year
- Revenue and GAAP earnings fell, largely because 2020 unrealized investment results were markedly weaker amid COVID-19 disruption. Performance allocations and principal investment income both recorded unrealized losses, unlike the prior-year gains.
- Net management and advisory fees increased, supported by fee-earning AUM growth and the start or end of fee holidays for several funds. Fee-Earning AUM rose 15%, with $109.2 billion of inflows, partly offset by $31.4 billion of outflows and $23.2 billion of realizations.
- Total AUM increased by $47.4 billion. In addition to fundraising and investment performance, a year-end methodology update for certain funds added a net $4.1 billion to reported market activity; the company recast certain historical fee-rate calculations as well.
- Blackstone issued $900 million of notes: $500 million of 1.60% notes due 2031 and $400 million of 2.80% notes due 2050. It also increased its revolving facility from $1.6 billion to $2.25 billion and extended maturity to November 2025.
- Blackstone deconsolidated nine CLO vehicles in 2020 after an ownership reorganization and a decline in its economic exposure. This reduced reported assets and liabilities; it continued to earn fees from those vehicles.
Outlook, risks, contingencies, and unusual items
- Outlook: Blackstone did not provide quarterly or annual earnings guidance. Management described the recovery from COVID-19 as gradual and uneven, with uncertainty around vaccine distribution and acceptance, renewed infections, and the pace of economic reopening.
- COVID-19 and markets: Hospitality, retail, selected office and residential assets, travel, leisure, events, and energy investments faced material pressure. A further downturn could depress valuations and realizations, reduce performance revenues and liquidity, or lead to redemptions from open-ended funds.
- Performance and valuation risk: A significant portion of earnings depends on realized and unrealized fund performance. Many investments are illiquid and valued using subjective assumptions; reported fair values may not be realized. The auditor identified fair-value estimates used in performance allocation calculations as a critical audit matter.
- Clawbacks: Recorded clawback obligations were $108.6 million at year-end, including $83.9 million attributable to Blackstone Holdings. In a hypothetical scenario where all carry-fund investments were worthless, potential after-tax clawback exposure was estimated at $4.0 billion, including up to $3.8 billion for Blackstone Holdings if personnel failed to pay their share; management considered this scenario remote.
- Other risks: Key-person retention, fundraising competition and fee pressure, leverage at portfolio companies, conflicts of interest, regulation, cybersecurity, ESG scrutiny, Brexit-related operating burdens, changing tax rules, and the transition away from LIBOR and other benchmarks could affect results.
- Legal matters: Blackstone said it was not subject to pending legal proceedings expected to have a material impact on its consolidated financial statements, while noting that adverse outcomes can be unpredictable. A Kentucky derivative case involving a Blackstone-managed fund remained in litigation; Blackstone stated it believed the claims were without merit.
- Governance and taxes: The company remains controlled through its preferred-stock structure, which limits common shareholders’ influence. Following the 2019 conversion, Blackstone expects to pay more corporate income tax than it did as a partnership; tax receivable agreement payments generally transfer 85% of realized tax savings to specified holders.
The independent auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2020. The board reclassified the company’s stock on February 26, 2021 without changing the predecessor classes’ rights and powers.
Important facts for investors to verify
- Reconcile GAAP earnings and operating cash flow with Distributable Earnings, Fee Related Earnings, and Segment Distributable Earnings, including the effects of unrealized marks and non-controlling interests.
- Review the sustainability of fee growth, fundraising, redemptions, and performance-fee realizations by segment, particularly in light of COVID-19-affected asset values.
- Examine the year-end AUM methodology change and distinguish reported AUM from fee-earning AUM and capital actually invested.
- Confirm corporate liquidity, debt maturities, fund commitments, and the cash-flow assumptions behind dividends and share repurchases.
- Assess potential clawback exposure, fair-value assumptions, and the sensitivity of performance revenue to further market declines.
- Review the governance and dilution implications of preferred-stock voting control, exchangeable partnership units, equity awards, and tax receivable agreements.