Blackstone falls short of $1 trillion after outflows from real estate investors

Now the private-equity giant is feeling the weight of higher interest rates on its valuations of some previous investments, and faces an era of investor caution as it tries to raise funds for new bets. President Jon Gray said he was not disappointed at missing the target and expressed confidence investors will trust more money as the company delivers.

“I’m most focused on returns,” Mr. Gray said in an interview. “Inflows follow performance.”

The tougher environment dragged distributable earnings down 41 percent to $1.3 billion as the company’s dealmakers slowed sales in the final three months of 2022, according to the company’s quarterly earnings report on Thursday.

That equated to $1.07 per share, beating the average analyst estimate of 94 cents. The company announced a dividend of 91 cents per share, below Bloomberg’s forecast of $1.02.

Blackstone shares slid 1.1 percent to $87.90 in early trade in New York. The stock had recovered 20 percent this month through Wednesday after falling 43 percent last year.

Blackstone, a heavyweight investor in everything from consumer brands to transmission lines to college dormitories and apartments, is the first of the largest private equity firms to report results for the period. That makes it a frontrunner for the broader industry and economy.

The New York-based company grew rapidly in an era of low interest rates when pensions, endowments and wealthy savers flocked to the promise of higher returns from private equity and real estate. But the Federal Reserve’s fight against inflation gives individuals more investment options, such as products that track rising interest rates. Economic uncertainty is limiting institutional appetite for private equity investments, which can take years to mature and are difficult to sell.

Blackstone had net inflows of $28 billion for the quarter, compared to $147 billion a year earlier.

$69 billion redemptions by the legendary Blackstone Real Estate Income Trust (BREIT) contributed to the outflows.

The company limited returns of this vehicle in December to prevent forced sales. Changes in the timing of BREIT’s earnings accounting in 2022 also made the decline in distributable earnings steeper. Real estate bets suffered in the fourth quarter, with opportunistic bets depreciating 2 percent and core investments depreciating 1.5 percent.

Still, the company held about $371 billion in so-called “perpetual” pools like BREIT, up 18 percent year-over-year.

Another bright spot was corporate private equity, which rose 3.8 percent, ahead of other investment units.

Individual investors remain a key driver of growth, Mr. Gray said. Assets under management for individuals and private banking channels totaled $239 billion at the end of 2022, up 25 percent from the same period last year, executives said.