Blackstone reported $1 trillion in assets under management at the end of the third quarter, flat from the prior quarter and up 6% year-over-year.
"Today's environment is an extremely challenging one for investors to navigate," said Stephen A. Schwarzman, Blackstone chairman and chief executive officer during Blackstone's third quarter earnings call on Oct. 19.
Higher interest rates, economic uncertainty, geopolitical turbulence, high fiscal deficits, political dysfunction and labor unrest have "adversely impacted investor sentiment," Schwarzman said.
Against this backdrop, Blackstone executive have chosen to sell fewer assets, he said.
Even so, Schwarzman noted that nearly all of Blackstone's flagship strategies outperformed indices in the third quarter. He said that the investment performance of Blackstone's private credit portfolio has been "outstanding," with gross returns of 4.6% (3.5% net) in the third quarter and 14.4% (10.5% net) in the year ended Sept. 30.
Blackstone's liquid credit had a gross return of 3.3% (3.2% net) in the third quarter and 12.7% gross return (12.1% net) in the 12-month period.
Private and liquid credit are part of Blackstone's credit and insurance business which reported $297 billion in assets under management at the end of the third quarter, up 1% from $295 billion at the end of the prior quarter and a 10% increase from $269 billion as of Sept. 30, 2022.
"We are the reference institution among global LPs, a position that has been continually reinforced across market cycles of nearly 40 years," Schwarzman said. "We have led the industry's evolution, and I expect we will continue to lead it in the future."
Blackstone's largest business, real estate, reported $332 billion as of Sept. 30, about flat with $333 billion at the end of the second quarter, but up 4% from $319 billion year-over-year. The firm's opportunistic real estate portfolio depreciated 2% in the third quarter and 4.5% in the year ended Sept. 30 , while its core plus portfolio appreciated 0.3% in quarter but depreciated 1.1% in the year ended Sept. 30.
The majority of Blackstone's real estate portfolio is in logistics, data centers and student housing, "which continue to benefit from robust fundamentals," said Jonathan Gray. Blackstone president and chief operating officer during the same call.
"Our data center business, QTS, held in BREIT (nontraded REIT Blackstone Real Estate Income Trust), BPP (core plus fund Blackstone Property Partners), and our infrastructure vehicle was the single largest source of appreciation at the firm, driven by explosive growth in data creation that is being accelerated by the AI revolution," Gray said.
Blackstone Infrastructure Partners, BREIT and BPP acquired and took private real estate investment trust QTS Realty Trust in 2021 in a $10 billion transaction at a price that represented a 21% premium to QTS' June 4, 2021 share price, QTS and Blackstone announced at the time.
"We are evaluating additional deployment opportunities in the space," Gray said.
About 8% of BREIT's portfolio is in data centers, he said.
Overall, Blackstone's inflows were $25.3 billion in the third quarter and $138.9 billion year over year, compared to inflows of $30.1 billion in the second quarter and inflows of $44.8 billion in the year-earlier quarter.
Inflows for Blackstone's real estate business totaled $9.1 billion in the third quarter, up from $7.9 billion in the second quarter but down from $10.1 billion in the quarter ended Sept. 30, 2022.
Real estate inflows included $724 million of capital raised in BREIT, down from $791 million of capital raised in BREIT in the second quarter and $4.2 billion raised for the nontraded REIT in the year-earlier quarter.
However, fewer BREIT investors are asking for their money back, with repurchase requests down nearly 30% from the second quarter and close to 60% from its peak in January, Gray said during the call
Across its entire business, Blackstone deployed $12.4 billion in the third quarter and $61.4 billion in the year ended Sept. 30. This reflected a slow-down in deployment from $19.5 billion in the prior quarter and $31.3 billion in the third quarter of last year.
Realizations also slowed to $14.8 billion in the third quarter and $63.4 billion over the last 12 months, compared to $17.2 billion in realizations in the second quarter and $15.7 billion in the quarter ended Sept. 30, 2022.
While noting that net realizations were down in the third quarter due to the market backdrop, Michael S. Chae, Blackstone chief financial officer, noted that third quarter realizations included a "significant sale" in July by BREIT of a self-storage company (Simply Self Storage to a REIT, Public Storage) for $2.2 billion.
Chae said it was one of the largest-ever transactions in the sector, generating about $600 million in profit.
"BREIT's asset sales since the beginning of last year, when interest rates began moving materially higher, have occurred at an average premium to their prior carrying value of 4%," Chae said. "Overall, we've been highly selective in terms of realizations, and activity is likely to remain muted in the near term, given the environment."
Blackstone reported GAAP net income of $921 million for the third quarter and $2.3 billion for the first 9 months of 2023, compared to GAAP net income of $1.2 billion for the second quarter and $1.4 billion in the six months ended June 30, and GAAP net income of $4 million for the year-earlier quarter and $2.2 billion for the first 9 months of 2022.
