Blackstone Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Blackstone is a global alternative asset manager operating across Real Estate, Private Equity, Hedge Fund Solutions, and Credit & Insurance. Financial statements are unaudited; dollar amounts below are in U.S. dollars.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| GAAP revenue | $1.06B | $6.22B | $6.81B | $16.81B |
| GAAP income before taxes | $97.9M | $3.66B | $2.86B | $10.18B |
| Net income attributable to Blackstone Inc. | $2.3M | $1.40B | $1.19B | $4.46B |
| Basic and diluted EPS | Reported as “—” | $1.94 | $1.61 | $6.21 |
| Distributable Earnings (non-GAAP) | $1.37B | $1.64B | $5.30B | $3.90B |
| Segment Distributable Earnings (non-GAAP) | $1.58B | $1.81B | $6.02B | $4.32B |
| Fee Related Earnings (non-GAAP) | $1.18B | $779.0M | $3.35B | $2.22B |
| Adjusted EBITDA (non-GAAP) | $1.65B | $1.86B | $6.25B | $4.46B |
Q3 GAAP expenses were $961.4M, down from $2.65B, primarily because performance-allocation compensation fell with investment results. Interest expense was $80.5M for the quarter and $216.9M for the nine months. The filing does not present a single conventional operating-margin measure; non-GAAP segment and fee-related earnings are management’s principal profitability measures.
- Cash flow: Nine-month operating cash flow was $5.62B, versus $4.80B in 2021. Investing cash outflow was $186.8M; financing cash outflow was $4.03B, including $5.33B of dividends and distributions.
- Liquidity: September 30 cash and cash equivalents were $3.48B; cash held by funds was another $94.4M and is not equivalent to unrestricted corporate cash. Blackstone also reported $799.0M of corporate treasury investments, $2.8B of liquid investments within Other Investments, and an undrawn $4.1B revolving facility.
- Debt: Loans payable were $9.26B, including $9.23B of senior notes and $30.6M of fund borrowings. Total assets were $40.26B and total liabilities $20.52B. The $4.1B revolver was undrawn at quarter-end.
- Assets under management: Total AUM reached $950.9B, up 8% year over year; fee-earning AUM was $705.9B, up 9% year over year. Perpetual Capital AUM was $359.6B, up 15% from December 2021.
Material changes versus prior periods
- GAAP revenue fell 83% year over year in Q3 and 59% for the first nine months. Investment income swung sharply: Q3 included $1.84B of net unrealized investment losses, compared with $2.91B of unrealized gains in Q3 2021. Nine-month total investment income was $1.25B, down 90% from $12.74B.
- Management and advisory fees increased 22% in Q3 and 25% year to date, reflecting AUM growth. Incentive fees also increased, though realized performance revenues were lower in Q3.
- Q3 Segment Distributable Earnings declined 13%; nine-month Segment Distributable Earnings increased 39%. Real Estate and Credit & Insurance grew year to date, while Private Equity and Hedge Fund Solutions declined.
- Q3 Real Estate Segment Distributable Earnings rose 7% to $763.5M; Private Equity fell 48% to $451.4M; Hedge Fund Solutions fell 30% to $82.5M; Credit & Insurance rose 176% to $284.4M.
- Net Accrued Performance Revenues were $7.06B at September 30, down from $8.31B a year earlier. The filing attributes the prior twelve-month decrease to $3.6B of net performance revenues offset by $4.8B of realized distributions.
Outlook, risks, contingencies, and unusual items
- Market environment: Management described persistent inflation, rising interest rates, slowing growth, geopolitical uncertainty, and sharply reduced capital-markets activity. It warned that volatility and weaker conditions could depress realizations, investment values, fundraising, and performance-related revenues. No numerical earnings guidance was provided in the supplied filing text.
- Fund flows and portfolio exposure: Management reported declining inflows and increased repurchase requests in private-wealth strategies, particularly among Asia-based investors in real estate strategies; a prolonged difficult environment could make net flows negative. Real estate exposure includes challenged office assets and longer leases. Private equity portfolio companies face wage, input-cost, and financing pressures. Credit strategies may benefit from floating-rate exposure but face borrower stress and reduced market liquidity.
- Unrealized valuation sensitivity: Q3 losses included an unrealized loss on Blackstone’s Corebridge Financial shares. Fair values of private investments rely in part on management estimates and unobservable inputs; valuations and performance revenues can change materially as markets and assumptions change.
- Commitments and clawbacks: Blackstone reported $5.0B of investment commitments. The recorded potential clawback obligation was $102.8M; management said a hypothetical loss of all carry-fund investments could result in $6.0B of potential clawback after tax, a scenario it considers remote. $1.2B was held in segregated accounts for personnel clawback obligations.
- Legal and tax matters: The filing discusses ongoing Kentucky Retirement Systems-related litigation; Blackstone says it considers the suits without merit and will defend them. Management did not expect current proceedings to materially affect the consolidated financial statements. Expected future Tax Receivable Agreement payments were estimated at $1.6B over 15 years, assuming sufficient taxable income and no material tax-law changes. The Inflation Reduction Act’s corporate minimum tax and stock-repurchase excise tax could affect tax costs; impact was still under evaluation.
- Subsequent financing: On November 3, 2022, Blackstone issued $600M of 5.900% notes due 2027 and $900M of 6.200% notes due 2033 for general corporate purposes. This occurred after the reporting date.
- Capital returns: Blackstone paid a $0.90 per-share dividend with respect to Q3; dividends/distributions declared per share totaled $4.04 for the first nine months. It repurchased 2.0M shares for $196.6M in Q3; $1.1B remained available under the repurchase authorization at quarter-end. Future dividends remain at the board’s discretion.
Most important facts for investors to verify
- How Q3’s near-zero GAAP income attributable to Blackstone Inc. and EPS reported as “—” reconcile to $1.37B of non-GAAP Distributable Earnings; distinguish consolidated GAAP results from segment and distributable measures.
- Whether fee growth and AUM inflows can offset lower realizations, market-driven valuation losses, and potential redemptions—especially in private-wealth vehicles.
- The sensitivity and valuation basis of accrued performance allocations, Corebridge shares, and other Level III investments, and the potential effect on future earnings and clawbacks.
- Debt maturities, interest costs, remaining capital commitments, and the availability and terms of the revolving facility; account for the $1.5B post-quarter note issuance.
- Actual tax effects of new U.S. tax provisions and future Tax Receivable Agreement payments, along with developments in the KRS litigation and any other material contingencies.