Blackstone Net Profit Falls 21% in Q2 on Real Estate Weakness

Blackstone’s net profit fell 21 percent in the second quarter from a year earlier, as underperformance in its real estate business weighed on the firm’s profitability.

The world’s largest alternative asset manager posted quarterly net profit of $948.4 million, sliding 41 percent from the prior quarter, according to the firm’s second quarter results announced Thursday. The firm booked $2.8 billion of revenue in the quarter, roughly flat from a year ago but 24 percent lower than the first quarter.

Real estate strategies delivered the lowest gross returns in the second quarter, with the income-focused core plus strategy logging a 0.1 percent gain and its riskier opportunistic strategy generating a 0.3 percent return. During the company’s earnings call, Blackstone chairman and CEO Stephen Schwarzman pointed to the firm’s property investments as standing to benefit from future interest rate cuts by the US Federal Reserve.

“With inflation continuing to recede, we expect the Fed to begin cutting interest rates later this year. This should be very positive for Blackstone’s asset values, and provide the foundation for a significant realisation cycle over time,” said Schwarzman.

Infrastructure Standout

Manhattan-based Blackstone’s second quarter distributable earnings grew 3 percent year-on-year to $1.3 billion, while fee-related earnings dipped 3 percent to $1.1 billion over the same period. Those earnings declined 1 percent and 4 percent from the prior quarter, respectively.

Despite accounting for the largest proportion of both distributable and fee-related earnings, real estate was the sole segment to see year-on-year declines in those metrics. The segment’s distributable earnings slid 19 percent to $516.5 million, while fee-related earnings fell 18 percent to $481.3 million.

Inflows reached $39.4 billion during the quarter, of which real estate accounted for $5.9 billion, with the core plus strategy representing 45 percent of that new capital. The fund manager deployed $33.7 billion of capital in the same period – the highest level in two years – including $9.8 billion into real estate, of which 68 percent was allocated to opportunistic strategies.

By performance, Blackstone’s infrastructure strategy generated the highest gross return in the quarter with a 6.3 percent gain, followed by the private credit strategy’s 4.2 percent appreciation. Other strategies including private equity, secondaries, liquid credit and absolute return posted quarterly returns ranging from 1.7 percent to 2.1 percent.

Total assets under management grew 1 percent from the first quarter to $1.1 trillion, while dry powder reached $181.0 billion. Real estate accounted for 31 percent and 33 percent of those amounts, respectively.

AI and Data Centre Focus

Within real estate, Blackstone remained positive on data centres, as well as logistics and rental residential assets, with those sectors comprising 75 percent of the fund manager’s global property equity portfolio compared to just 2 percent in 2007.

Blackstone currently manages $55 billion worth of data centre investments, including facilities under construction, along with over $70 billion in prospective pipeline developments. The firm is positioning itself to be the largest financial investor in artificial intelligence infrastructure in the world, according to Schwarzman.

“Our data centre platform was again the single largest driver of appreciation in our real estate and infrastructure businesses, and for the firm overall in the second quarter” said Blackstone chief financial officer Michael Chae.

The firm’s president and COO Jonathan Gray pointed to the presence of more bidders in sale processes as affirming his view that commercial real estate values are bottoming.

“In our own portfolio, we are now seeing more bidders show up to sales processes for single assets, driving price improvement,” said Gray.

Blackstone intends to expand its infrastructure platform as well as its Asia business in the near term, with the fund manager planning to raise a new flagship Asia private equity fund in 2025.