Blackstone Inc. (BX) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results; dollar amounts below are USD. Blackstone is an alternative asset manager with Real Estate, Private Equity, Hedge Fund Solutions, and Credit & Insurance segments. The company changed its name from The Blackstone Group Inc. effective August 6, 2021, after quarter-end.
Financial results and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| GAAP revenue | $5.291B | $2.516B | $10.590B | $(0.560)B |
| Management and advisory fees, net | $1.213B | $0.970B | $2.390B | $1.905B |
| GAAP net income attributable to Blackstone | $1.309B | $0.568B | $3.057B | $(0.498)B |
| Diluted earnings per share | $1.82 | $0.81 | $4.27 | $(0.74) |
| Segment Distributable Earnings | $1.222B | $0.625B | $2.511B | $1.209B |
| Distributable Earnings | $1.070B | $0.548B | $2.262B | $1.105B |
| Fee Related Earnings | $0.704B | $0.541B | $1.445B | $1.009B |
- Q2 GAAP revenue rose 110% year over year and net income attributable to Blackstone rose 130%. The six-month comparison reflects a sharp reversal from 2020’s GAAP loss.
- Investment income was $3.987B in Q2 2021 versus $1.563B a year earlier. The increase chiefly reflected stronger realized gains and unrealized appreciation in fund investments. Six-month investment income was $7.980B versus a $2.634B loss in 2020.
- Higher fund performance also drove compensation: Q2 compensation and benefits increased to $2.019B from $0.960B, including $1.150B of unrealized performance-allocation compensation. Six-month compensation and benefits were $3.838B versus $0.118B in 2020, when performance-allocation compensation included a negative adjustment.
- At June 30, total AUM was $684.0B, up 11% from year-end 2020; fee-earning AUM was $498.9B, up 6% from year-end. Q2 fee-earning AUM rose $17.7B, with inflows and market appreciation offset partly by outflows and realizations. Hedge Fund Solutions and Credit & Insurance recorded notable outflows during the quarter.
Cash flow, balance sheet, and liquidity
- Six-month operating cash flow was $3.196B, investing cash outflow was $34.8M, and financing cash outflow was $2.644B. Cash and cash held by funds increased $512.7M to $2.577B; company cash and cash equivalents were $2.467B.
- At June 30, total assets were $33.297B, total liabilities $14.750B, and total equity $18.481B. Loans payable were $5.595B, compared with $5.645B at year-end 2020. Corporate treasury investments were $2.440B.
- Blackstone reported no borrowings under its $2.25B revolving credit facility. Management cited cash flows, realizations, liquid investments, and the revolver as liquidity sources. Consolidated fund assets are generally restricted to fund obligations and do not have recourse to Blackstone’s general credit.
- Q2 dividends declared were $0.82 per share; the filing reports $1.78 per share declared for the first six months. The company’s stated intention is to distribute approximately 85% of its share of Distributable Earnings quarterly, subject to board discretion and other stated conditions.
Material changes versus the prior comparable period
- Reported earnings rebounded substantially from 2020, reflecting stronger investment valuations and realizations across major strategies. Management emphasized that GAAP results include unrealized investment gains and losses and are therefore sensitive to changes in fund valuations.
- Segment Distributable Earnings in Q2 increased to $1.222B from $0.625B. Real Estate contributed $572.6M, Private Equity $446.9M, Hedge Fund Solutions $109.6M, and Credit & Insurance $92.8M.
- Accrued performance allocations, recorded as investments, rose to $12.101B from $6.891B at December 31, 2020. Net Accrued Performance Revenues, a non-GAAP measure net of performance compensation, were $6.761B at June 30, 2021 versus $2.708B a year earlier.
- Blackstone completed the January 2021 Pát ria IPO-related sale transactions and ceased equity-method accounting for its retained interest after losing significant influence; the transactions contributed realized investment gains.
Outlook, commentary, risks, and unusual items
- Management described continued market recovery and strong equity and credit markets, but cautioned that recovery could remain uneven across sectors and regions. The Delta variant and uncertain pandemic trajectory, inflation, potential margin pressure, interest rates, and policy or regulatory changes were cited as risks.
- Management noted that higher inflation could adversely affect some real estate assets, including properties with long-term leases, and that weaker long-term energy fundamentals continue to challenge certain energy investments. A significant market downturn could reduce realizations and performance revenues, affect valuations, and prompt redemptions or pressure borrowers.
- Subsequent to quarter-end, Blackstone agreed to acquire a 9.9% stake in AIG’s Life and Retirement business for $2.2B, subject to adjustments, alongside a planned long-term asset-management partnership. On August 5, 2021, it issued $2.0B of senior notes due 2028, 2032, and 2051, with stated coupons of 1.625%, 2.000%, and 2.850%, respectively; proceeds were intended for general purposes, potentially including part of the AIG investment.
- Blackstone reported $3.7B of investment commitments at June 30, including general partner, limited partner, and principal commitments. It also disclosed $3.660B of remaining Blackstone operating-entity commitments in its liquidity tables.
- Recorded potential clawback liability was $86.4M. Separately, $856.4M was held in segregated accounts for possible personnel clawbacks. Management characterized a maximum hypothetical clawback of $3.6B if all carry-fund investments became worthless as remote.
- Legal proceedings include Kentucky matters relating to the Kentucky Retirement Systems’ investments and subscription agreements. Blackstone said it believed the suits were without merit and intended to defend them; management stated that no current legal proceeding was expected to materially affect results, financial position, or cash flows.
- The company authorized up to $1.0B of share and partnership-unit repurchases in May; $289.1M was spent in the first half, leaving $758.4M available at June 30. A new compensation program shifted $15.0M of Q2 compensation between realized-performance and fee-related categories without changing GAAP pretax income or Distributable Earnings.
Most important facts for investors to verify
- How much of earnings and accrued performance revenue is unrealized, and how sensitive are the reported valuations to market assumptions?
- Whether fundraising, AUM inflows, redemptions, and realizations persist, especially in Hedge Fund Solutions and Credit & Insurance.
- The funding, closing conditions, and expected economics of the AIG transaction and asset-management partnership, alongside the post-quarter $2.0B note issuance.
- The timing and funding demands of Blackstone’s $3.7B commitments, the $2.25B undrawn revolver, and dividend and repurchase plans.
- Developments in the Kentucky litigation and any change in clawback exposure or related segregated funds.