Blackstone Inc. quarterly report, Q1 FY2024

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Business context and reporting period

Blackstone Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2024. The alternative asset manager earns management and advisory fees, incentive fees, performance allocations and investment income across Real Estate, Private Equity, Credit & Insurance, and Multi-Asset Investing.

Effective in Q1, the former Hedge Fund Solutions segment was renamed Multi-Asset Investing, and corporate credit, asset-based finance and insurance groups were integrated into Credit & Insurance. Harvest is scheduled to move to Multi-Asset Investing and GP Stakes to Private Equity in Q2.

Financial and operating results

  • Revenue: $3.69 billion, up 167% from $1.38 billion. Management and advisory fees rose 4% to $1.73 billion; incentive fees rose 26% to $179 million. The increase chiefly reflected a $2.13 billion swing in investment income, including unrealized performance and principal-investment gains versus losses in Q1 2023.
  • Profit: GAAP net income was $1.60 billion versus $211 million; net income attributable to Blackstone Inc. was $847 million versus $86 million. Diluted EPS was $1.11 versus $0.11. Results were materially affected by investment valuations and are not a measure of recurring fee earnings alone. The filing does not provide a conventional operating-margin measure.
  • Management profitability measures: Fee Related Earnings were $1.16 billion, up 12%; Segment Distributable Earnings were $1.45 billion, up 2%; and Distributable Earnings were $1.27 billion, up 1%. These are non-GAAP measures and exclude unrealized activity, among other adjustments.
  • Cash flow: Cash from operating activities was $940 million, compared with $353 million a year earlier. Investing activities used $18 million; financing activities used $1.52 billion, including $1.18 billion of dividends and distributions. Cash and cash equivalents were $2.50 billion at quarter-end, down from $2.96 billion at year-end; an additional $168 million was held by funds and is not generally available for Blackstone’s obligations.
  • Debt and liquidity: Loans payable totaled $10.74 billion, including $10.57 billion of Blackstone operating borrowings and $170 million of consolidated-fund CLO notes. Operating borrowings were primarily senior notes. Blackstone reported no borrowings on its $4.325 billion revolving facility. It also reported $198 million of corporate treasury investments and $4.6 billion of liquid investments within Other Investments. Consolidated fund assets and liabilities may be nonrecourse and should not be treated as corporate liquidity or debt.
  • Balance sheet: Total assets were $39.71 billion, total liabilities $21.23 billion and total equity $17.54 billion. Loans payable declined from $11.30 billion at December 31, 2023.
  • Assets under management: Total AUM rose 2% to $1.061 trillion and fee-earning AUM rose 2% to $781.4 billion. Net inflows and market appreciation contributed to growth; foreign-exchange effects partly offset it.
  • Dividends and repurchases: Blackstone paid $0.83 per share with respect to Q1 2024. Its stated intent is to distribute approximately 85% of its share of Distributable Earnings, subject to board discretion. It repurchased 0.7 million shares for $88 million; $668 million remained under the repurchase authorization.

Material changes versus the prior comparable period

  • GAAP results rebounded sharply from Q1 2023, when unrealized performance allocations and principal investments were negative. Q1 2024 included $446 million of unrealized performance allocations and $462 million of unrealized principal-investment income.
  • Segment Distributable Earnings rose 2% overall, but performance varied: Real Estate increased 15% to $616 million; Private Equity fell 8% to $482 million; Credit & Insurance fell 2% to $292 million; and Multi-Asset Investing fell 10% to $63 million.
  • Fee-earning AUM grew from $762.6 billion at year-end 2023, with the largest segment increase in Credit & Insurance. Total AUM grew from $1.040 trillion.
  • GAAP compensation and benefits rose 71% to $1.31 billion, largely reflecting higher performance-allocation compensation associated with stronger investment marks. General, administrative and other expenses increased 35% to $370 million.

Outlook, commentary, risks and unusual items

  • Management described resilient economic activity and stronger equity and capital-markets activity, while warning that persistent high interest rates, inflation, geopolitical uncertainty and a potentially slowing economy could weigh on valuations, fundraising, realizations and earnings.
  • Real Estate: management cited diverging sector performance, continued weakness in traditional U.S. office and pressure from high financing costs. It expects a lag before realizations accelerate. BREIT repurchase requests fell to their lowest level in nearly two years and the vehicle was no longer in proration during Q1; renewed market deterioration could still weaken inflows.
  • Private Equity: operating-company revenue growth was resilient but decelerating; realizations remained muted, and difficult market conditions made flagship-fund fundraising more challenging. Management expects a lag between improving markets and renewed realizations.
  • Credit & Insurance: management reported strong demand and low portfolio default rates, but cautioned that prolonged high rates could increase borrower defaults. Falling rates or wider spreads could make recent fund performance harder to sustain, while market dislocation could constrain asset sales.
  • Multi-Asset Investing: management reported broad positive strategy performance in Q1, but warned that weak markets, sustained high rates and investor reallocations could reduce fee or performance revenue.
  • Valuation and earnings sensitivity: Fair values of private investments rely substantially on estimates and unobservable inputs. These marks affect reported investment income, performance allocations and related compensation; actual realizations may differ.
  • Contingencies: A $646 million liability was recognized for the UC strategic ventures, backed by $1.1 billion of pledged BREIT holdings; the stated 11.25% target return is not guaranteed. Recorded potential performance-allocation clawbacks were $231 million. A hypothetical total loss of carry-fund investments could produce $6.5 billion of after-tax clawbacks, which management views as remote.
  • Legal and regulatory matters: The filing reports ongoing Kentucky Retirement Systems-related litigation; courts denied Blackstone defendants’ motions to dismiss in certain actions on May 1, 2024, and Blackstone says it will defend the claims. The SEC is also examining retention of certain electronic business communications; Blackstone is cooperating and has accrued an estimated liability, but the filing text does not provide a clear value for that accrual.
  • Blackstone disclosed $4.7 billion of investment commitments at March 31, 2024. Its tax receivable agreements are expected to require approximately $1.6 billion of future payments over 15 years, assuming sufficient taxable income and no material tax-law changes.

Important facts for investors to verify

  1. How much of the earnings rebound reflects realized, recurring fee-based performance versus unrealized investment marks, and how sensitive are those valuations to market assumptions?
  2. Whether realizations, fundraising and fee-earning AUM sustain momentum, particularly in Real Estate and flagship Private Equity funds.
  3. Current BREIT redemption levels and any effect of market conditions on redemption capacity, inflows or investor confidence.
  4. The amount and possible resolution of the SEC communications-retention accrual, and developments in the Kentucky litigation.
  5. Liquidity available after accounting for corporate investment commitments, debt service, dividends, tax receivable agreement payments and potential clawbacks; distinguish corporate resources from nonrecourse fund assets.