Blackstone’s fundraising remains strong, but posts quarterly loss with cautious road ahead

Boosted by record inflows in the second quarter, Blackstone on Thursday reported a record $940.8 billion in assets under management, up 2.8% from the end of the prior quarter and up 38% year-over-year.

“We raised a remarkable $88 billion of inflows … in the quarter in the midst of the market chaos, our second-highest quarter ever and equal, ironically, to Blackstone’s total AUM at the time of our IPO in 2007,” said Stephen A. Schwarzman, Blackstone’s chairman and CEO, during an earnings call.

Inflows in the year ended June 30 reached $340 billion, he added. Net inflows for the quarter and year were $74 billion and $301 billion, respectively.

However, Jonathan Gray, Blackstone’s president and chief operating officer, acknowledged on the same call that fundraising “is getting harder out there.”

“It’s particularly tough in North America private equity with institutions,” Mr. Gray said.

However, he added that Blackstone is on track to raise a total $150 billion from major institutions over its current 18-month fundraising cycle ending around mid-year 2023.

“While we were not immune to the market volatility, we saw a strong appreciation in our travel, leisure and energy holdings,” making up 28% of Blackstone’s corporate private equity business, compared with a 5% weighting in the S&P 500, Mr. Gray said.

However, Blackstone reported gross losses of 6.7% in corporate private equity for the quarter. Gross returns were also negative for liquid credit, which was -5.5%, and private credit at -0.1%. Tactical opportunities had a loss of 2.4% in the second quarter.

Mr. Gray said that one of the positives for its secondary markets business is that asset owners are overallocated to private equity, but that it is “making fundraising more challenging for many firms.” While limited partners might pause selling for now, he expects transactions to pick up because LPs are overallocated.

Private equity is Blackstone’s second-largest business by AUM at $275.9 billion, just behind real estate. Private equity AUM was up 3% for the quarter and up 23% from June 30, 2021. Blackstone’s real estate business reported $320 billion in AUM as of June 30, up 7.3% from March 31 and up 54.2% from the end of the year-earlier quarter.

In real estate, the portfolio’s two largest sectors are in residential real estate and logistics, which have outperformed other sectors, Mr. Gray said. Growing rents was a big contributor to the business’ outperformance, he said.

“In our U.S. multifamily markets, rents grew 19% based on the most recent data for May,” Mr. Gray said.

“Obviously at some point the very high rates of rental growth will come down,” he added.

But in the meantime, Blackstone is in the midst of raising its largest fund ever. Mr. Gray said that they began raising the next global real estate flagship fund in March, “targeting $30.3 billion, which is 50% larger than its predecessor and would represent the largest private equity or real estate private equity drawdown fund ever raised.”

Blackstone’s credit and insurance business accounted for $264.8 billion in AUM as of June 30, down from $266.4 billion three months earlier but up from $173.7 billion year-over-year. Hedge funds AUM was $80.1 billion as of June 30, down 3.4% from a record $82.9 billion in the prior quarter but up 1.3% from $79.1 billion as of June 30, 2022.

Blackstone reported a GAAP net loss of $29 million for the quarter, net income of $1.2 billion for the year-to-date and GAAP net income of $4 billion for the 12 months ended June 30. By comparison, Blackstone earned GAAP net income of $1.3 billion in the second quarter of 2021, GAAP net income of $3.1 billion for the first six months of 2021 and GAAP net income of $4.6 billion in the year ended June 30, 2021.