Blackstone Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Blackstone is a global alternative asset manager with Real Estate, Private Equity, Hedge Fund Solutions, and Credit & Insurance segments. Figures below are in U.S. dollars; financial statements are unaudited.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| GAAP revenue | $629 million | $5.291 billion | $5.756 billion | $10.590 billion |
| Net income (loss) attributable to Blackstone Inc. | $(29) million | $1.309 billion | $1.187 billion | $3.057 billion |
| Diluted earnings (loss) per share | $(0.04) | $1.82 | $1.61 | $4.27 |
| Distributable Earnings (non-GAAP) | $1.986 billion | $1.070 billion | $3.924 billion | $2.262 billion |
| Segment Distributable Earnings (non-GAAP) | $2.344 billion | $1.222 billion | $4.442 billion | $2.511 billion |
- Revenue mix and volatility: Q2 management and advisory fees were $1.561 billion, up 29%; incentive fees were $100 million, up 200%. GAAP revenue fell primarily because unrealized investment income swung to a $3.968 billion loss in Q2 from $3.026 billion of gains a year earlier. Realized investment income was $2.719 billion, versus $961 million.
- Cash flow: First-half operating cash flow was $4.638 billion, compared with $3.196 billion in 2021. Cash and cash equivalents were $4.183 billion at June 30, 2022; including cash held by funds and others, the total was $4.313 billion.
- Assets, debt and liquidity: Total assets were $41.631 billion and total liabilities were $20.297 billion. Loans payable were $9.365 billion carrying value ($9.497 billion principal). Blackstone reported $810.7 million in corporate treasury investments and $1.3 billion of liquid investments within other investments. Its $4.1 billion revolving facility was undrawn at quarter-end.
- Assets under management: Total AUM was $940.8 billion, up 7% from December 31, 2021; fee-earning AUM was $683.8 billion, up 5%. First-half total AUM inflows were $138.1 billion, partly offset by $52.5 billion of realizations, $24.4 billion of outflows and $1.3 billion of net market depreciation.
- Margins: The filing text does not provide a single consolidated GAAP operating margin measure. Fee Related Earnings, a non-GAAP measure, were $1.021 billion in Q2 and $2.167 billion for the first half.
Material changes versus prior comparable periods
- GAAP results weakened sharply as portfolio valuations declined amid market volatility; unrealized performance allocations and principal investment results drove the quarterly GAAP loss. The first-half GAAP net income attributable to Blackstone fell 61% year over year.
- Management and advisory fees rose 29% in Q2 and 27% for the first half, supported by growth in fee-earning assets, notably in real estate and Credit & Insurance. First-half incentive fees also increased substantially.
- Non-GAAP Distributable Earnings increased 86% in Q2 and 73% in the first half. Real Estate led segment earnings growth, while Private Equity and Hedge Fund Solutions segment earnings declined year over year in Q2; Credit & Insurance increased.
- First-half investment income included $4.220 billion of realized performance allocations, versus $1.343 billion a year earlier, but unrealized performance allocations were a $2.175 billion loss versus $5.162 billion of gains.
Outlook, risks and unusual items
- Market environment: Management described steep market declines and volatility, driven by inflation, rising interest rates, slowing growth and geopolitical uncertainty. It noted U.S. economic contraction in both Q1 and Q2 and an ongoing debate about recession. The filing provides no specific company-wide earnings or AUM guidance.
- Near-term outlook: Management said challenging conditions may mute realizations for some time; fundraising in retail strategies had moderated, while volatility and investor liquidity needs increased repurchase requests. It warned that continued or worsening conditions could pressure net flows and performance.
- Portfolio risks: Inflation, higher financing costs, supply-chain disruptions and weaker growth may pressure portfolio-company margins and valuations. Private Equity technology and growth investments were particularly affected by market repricing. Management also cited real estate exposure to long leases and Credit & Insurance borrower sensitivity to rates and inflation. Certain energy investments may face weakened long-term fundamentals due to climate-related scrutiny, notwithstanding recent favorable oil and gas prices.
- Financing and distributions: Blackstone issued €500 million of 3.5% senior notes due 2034 and amended its revolving facility, increasing capacity to $4.1 billion and extending maturity to June 2027. It paid a $1.27-per-share dividend for Q2 earnings; its stated policy targets quarterly dividends of approximately 85% of Blackstone’s share of Distributable Earnings, subject to board discretion.
- Commitments and contingencies: Blackstone reported $5.7 billion of operating-entity investment commitments. Accrued potential clawback obligations were $102.7 million; a hypothetical loss of all carry-fund investments could imply $6.2 billion of potential clawbacks, which management viewed as remote. Estimated future Tax Receivable Agreement payments were $1.6 billion over 15 years, subject to assumptions about tax law and taxable income.
- Legal matters: The filing describes ongoing Kentucky Retirement Systems-related litigation and appeals. Blackstone said it did not expect pending legal proceedings to materially affect its financial statements, while noting litigation outcomes are inherently uncertain.
- Other: First-half effective tax rate was 18.8%, compared with 4.4% in 2021, mainly reflecting prior-year deferred-tax valuation allowance reductions and higher state tax provision. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile GAAP losses and revenue declines with the much stronger non-GAAP Distributable Earnings; assess how much depends on realized performance revenues versus recurring fee earnings.
- Review valuation sensitivity and the scale of unrealized exposures, including the impact of further declines in private equity, real estate and credit assets.
- Track AUM flows, redemption requests and liquidity terms in BREIT, BCRED and other perpetual-capital vehicles, alongside the distinction between total and fee-earning AUM.
- Assess debt maturities, interest costs, the undrawn revolver, $5.7 billion of commitments, dividends and share repurchases against available liquidity and realization-dependent cash flows.
- Monitor clawback exposure, Tax Receivable Agreement payments, tax examinations and the outcomes of the disclosed Kentucky litigation.