Business Context and Reporting Period
Blackstone Inc. is a global alternative asset manager with Real Estate, Private Equity, Hedge Fund Solutions, and Credit & Insurance segments. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods unless noted. Amounts below are rounded to billions of dollars, except per-share data.
Financial Performance and Key Metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $6.22B | $3.03B | $16.81B | $2.47B |
| Investment income (loss) | $4.76B | $2.13B | $12.74B | $(0.50)B |
| Income before taxes | $3.66B | $1.80B | $10.18B | $0.54B |
| Net income attributable to Blackstone Inc. | $1.40B | $0.79B | $4.46B | $0.30B |
| Diluted earnings per share | $1.94 | $1.13 | $6.21 | $0.43 |
| Operating cash flow | Not presented separately | Not presented separately | $4.80B | $1.63B |
| Adjusted EBITDA (non-GAAP) | $1.86B | $0.86B | $4.46B | $2.15B |
| Distributable Earnings (non-GAAP) | $1.64B | $0.77B | $3.90B | $1.88B |
| Segment Distributable Earnings (non-GAAP) | $1.81B | $0.83B | $4.32B | $2.03B |
For Q3, Fee Related Earnings were $779 million versus $611 million; Net Realizations were $1.03 billion versus $214 million. For the nine months, Fee Related Earnings were $2.22 billion versus $1.62 billion; Net Realizations were $2.10 billion versus $414 million. These segment measures exclude unrealized activity and are non-GAAP.
At September 30, 2021, Total Assets Under Management were $730.7 billion, up 18% from year-end 2020; Fee-Earning AUM was $528.4 billion, up 13%. Cash and cash equivalents were $5.01 billion; corporate treasury investments were $1.52 billion. Loans payable were $7.53 billion, compared with $5.64 billion at year-end 2020. Total assets were $39.04 billion, liabilities $18.16 billion, and total equity $20.81 billion. Nine-month dividends declared were $2.48 per share; Q3 declared dividends were $0.70 per share.
Material Changes Versus Prior Period
- GAAP revenue and earnings rose sharply, primarily reflecting stronger realized and unrealized performance allocations and principal investment gains. Nine-month 2020 included unrealized investment losses; nine-month 2021 included substantial appreciation.
- Q3 2021 revenue increased 105% year over year; nine-month revenue increased 580%. Performance-related compensation also rose significantly, partially offsetting higher investment income.
- Fee-related revenue and earnings increased alongside AUM growth. Nine-month Segment Distributable Earnings rose across all four segments, led in dollars by Real Estate and Private Equity.
- Operating cash flow increased to $4.80 billion from $1.63 billion for the nine months. Financing cash outflow was $1.69 billion, including $3.20 billion of dividends and distributions.
- Blackstone issued $2.0 billion of senior notes in August, with maturities in 2028, 2032, and 2051 and stated coupons of 1.625%, 2.000%, and 2.850%. The $2.25 billion revolving facility had no borrowings at quarter-end.
Outlook, Risks, Contingencies, and Unusual Items
Management described continuing economic recovery and robust activity, but noted uneven conditions, market volatility, elevated inflation, supply-chain constraints, labor shortages, wage and energy cost increases, and the possibility of tighter monetary policy and higher financing costs. COVID-19 and its continuing economic effects remain risks. The filing gives no quantified earnings or revenue guidance.
Management highlighted potential pressure on portfolio company margins and valuations, particularly where businesses cannot offset rising input costs. It also cited risks from weaker energy fundamentals, market downturns, investor redemptions in certain strategies, fundraising constraints, regulatory changes, and proposed U.S. tax changes. These factors could affect realizations, valuations, fees, and investment performance.
Blackstone’s $85 million recorded potential clawback liability is based on current fund values. In the remote scenario that all carry-fund investments became worthless, potential clawback would be $4.8 billion after tax where applicable; management considers this possibility remote. Personnel had $917 million in segregated accounts for potential clawback obligations. Blackstone reported $3.8 billion of its own investment commitments. It stated that no current legal proceeding or claim was expected to materially affect results, financial position, or cash flows, while noting litigation outcomes are inherently uncertain.
After quarter-end, on November 2, 2021, Blackstone completed its $2.2 billion acquisition of a 9.9% interest in AIG’s retirement-services business and entered a long-term asset-management partnership. A change in Strategic Partners’ reporting process made Q3 results reflect two quarters of underlying market activity and nine-month results reflect four quarters, reducing direct comparability. Blackstone also reported the Pát ria IPO-related sale transactions as a source of realized gains. The company’s stated dividend policy targets approximately 85% of its share of Distributable Earnings, but payment and amount remain subject to board discretion and other requirements.
Management said disclosure controls were effective at a reasonable assurance level and there was no material change in internal control over financial reporting during the quarter. No material change in market risks was reported from year-end 2020.
Important Facts for Investors to Verify
- Separate cash, debt, and liquidity attributable to Blackstone’s operating entities from assets and liabilities of consolidated funds, which are generally not available to satisfy Blackstone’s obligations.
- Assess how much reported earnings growth came from unrealized valuation gains and realized performance revenues, and how sensitive these amounts are to market conditions.
- Review the non-GAAP definitions and reconciliations for Distributable Earnings, Segment Distributable Earnings, Fee Related Earnings, and Adjusted EBITDA before comparing them with GAAP results or other managers.
- Evaluate AUM and fee-earning AUM growth, including fund inflows, redemptions, realizations, and the Strategic Partners reporting change.
- Monitor debt maturities, the $3.8 billion of investment commitments, the $85 million recorded clawback accrual, and the much larger remote stress-case clawback exposure.
- Confirm the subsequent AIG transaction’s expected contribution, funding, and terms, and track the effect of inflation, interest rates, COVID-19, and tax or regulatory changes on portfolio performance.