Blackstone Battered by Selloff; Gray Sees ‘Elongated Recovery’ (#GotBitcoin?)
Firm’s assets fall as value of energy holdings tumble, though e-commerce warehouses help real-estate business. Blackstone Battered by Selloff; Gray Sees ‘Elongated Recovery’ (#GotBitcoin?)
Blackstone Group Inc.’s first-quarter results were hit hard by the coronavirus-led market selloff, and the firm’s president, Jonathan Gray, said he sees the economic recovery taking some time to gain steam.
The private-equity giant swung to a loss as declining markets forced it to write down the value of its investment portfolio. Its assets under management fell from the prior quarter for just the third time since the financial crisis.
The results come amid a pandemic that has ravaged the global economy, forcing businesses to shut down and individuals to remain in their homes. Travel, retail, sporting events and live entertainment have ground to a halt, oil prices have plummeted and unemployment has surged as companies cut costs to remain afloat.
Blackstone BX 4.53% has taken advantage of some resulting opportunities to invest in public equities and debt, but it has held off on bigger deals because it believes the economic recovery will be gradual.
“We’re certainly not in the ‘V’ camp. We’ve been debating what the shape is,” Mr. Gray told The Wall Street Journal. “I think it’s an elongated recovery. That’s why we’re not rushing to invest.”
The firm posted a net loss of $1.07 billion, or $1.58 a share, for the first quarter. That compares with a profit of $481.3 million, or 71 cents a share, a year earlier.
The value of Blackstone’s private-equity portfolio tumbled 21.6% in the quarter, primarily driven by the effect of plunging oil prices on its energy holdings. Excluding energy, the private-equity portfolio’s value declined by 11.1%. The S&P 500 fell 20% over the period, its biggest quarterly decline since 2008.
Blackstone’s massive real-estate business held up better, with the value of the portfolios of its two strategies falling by 8.8% and 3.9% in the quarter. Relatively low exposure to hotels and retail real estate helped the firm, as did its significant holdings of e-commerce warehouses, which make up more than a third of its real-estate portfolio and have benefited from virus-related quarantines.
Blackstone’s assets under management were $538.01 billion, down from $571.12 billion at the end of the previous quarter, a setback to the firm’s goal of reaching $1 trillion in assets by 2026. It was only the third time since 2009 that Blackstone’s assets have declined from quarter to quarter, according to data from S&P Global Market Intelligence.
Fee-earning assets under management climbed roughly 4% quarter-over-quarter, demonstrating the importance of locked-in capital in steadying Blackstone’s results.
On a call with analysts Thursday to discuss the results, Blackstone Chief Executive Stephen Schwarzman emphasized the importance of being patient during a crisis. He pointed to the firm’s experience with Hilton Worldwide Holdings Inc., which it bought just before the financial crisis and whose value fell to 31 cents on the dollar. The firm and its investors reaped a record profit of $14 billion once the economy recovered.
“With an asset-light model and third-party capital, typically under very long-term contracts, we do not face the same pressures to sell as others do when values are low,” Mr. Schwarzman said.
While net income and assets under management are a snapshot of the on-paper value of a private-equity firm’s portfolio, distributable earnings represent the amount of cash that could be returned to shareholders.
For Blackstone, that metric climbed 4% year over year to $557.1 million, or 46 cents a share. The firm distributed more than $700 million through dividends and share repurchases during the quarter.
Shares of Blackstone rose more than 7% by midday.
The market’s drop could also work to Blackstone’s advantage. The firm has spent the past two years raising nearly $250 billion, partly for massive new private-equity and real-estate funds. That has left it with $151.1 billion in unspent cash to invest in new opportunities at a time when prices may be depressed.
Blackstone’s fundraising machine showed few signs of slowing, despite pressures on some investors’ finances and the inability to travel to meet with them. The firm raised $27.3 billion in the quarter, including $12 billion in March.
On Thursday’s call, Mr. Schwarzman described meeting with investors via Zoom video calls.
“One of the advantages of being in business for 35 years is that everybody on our side of the table knows everybody well on the other side of the table at virtually every institution in the world,” he said. “That bond of trust that you have that gets developed over decades really becomes exceptionally useful in a situation like this.”
Blackstone said last week it would invest $2 billion in Alnylam Pharmaceuticals Inc. through a combination of equity and debt, but it has so far been absent from recent high-profile financings of cash-strapped companies.
Blackstone also said it would pay a dividend of 39 cents a share, versus 37 cents a year earlier.
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