Blackstone Inc. CEO Stephen Schwarzman described a brightening outlook for deals and fundraising as the listed alternative asset manager emerges from a "cyclical bottom" in 2023 that shrank earnings 20% from prior-year totals.
"We see a resilient economy, albeit one that is decelerating. What we're seeing is consistent with a soft landing," Schwarzman said on the firm's fourth-quarter earnings call.
The firm celebrated a major milestone in 2023, becoming the first private equity manager to surpass $1 trillion in assets under management in July. But profits declined for the second consecutive year as the firm chose to sell less in an unfavorable exit environment.
Net income totaled $1.39 billion, or $1.84 per share, for the 12 months ended Dec. 31, 2023, down more than 20% from $1.75 billion, or $2.36 per share, in fiscal year 2022.
Assets under management totaled $1.04 trillion as of Dec. 31, up 6.7% from $974.7 billion at the end of 2022.
Shifting dynamics
Blackstone's performance declined year over year across key metrics, with 2023 fundraising falling 34.3% to $148.52 billion. Capital deployed into new investments was down 38.8% to $73.81 billion. Proceeds from investments fell 19.7% to $65.69 billion.
Cooling inflation and the expectation central banks will begin to trim interest rates underpin the firm's more optimistic view on 2024. Blackstone President Jonathan Gray said emerging drivers of improved performance for the firm include a recent uptick in new investment activity.
A second dynamic brightening the outlook is the ongoing expansion of its private wealth strategy, Gray said. The firm estimates the global market of individuals with $1 million or more to invest is as large as $80 trillion, and its latest effort to tap that vein of capital is its first-ever private equity fund open to individual investors, Blackstone Private Equity Strategies Fund LP, which held a $1.3 billion first close in January.
The third trend Gray identified was the bottoming of valuations in the commercial real estate market, which were dealt a major blow by the COVID-19 pandemic and a broad shift to remote work. If true, it bodes well for Blackstone, the biggest commercial property owner in the world.
"This doesn't mean there won't be more troubled real estate investments to come in the market, particularly in the office sector, which were set up during a period when borrowing costs were much lower, nor does it mean we won't see a slowing in fundamentals in certain sectors with excess near-term supply," he cautioned.
Mixed picture for private equity
Private equity is now Blackstone's third-largest business by AUM, having been overtaken by its combined private credit and insurance business in 2023. Nearly one-third of Blackstone's AUM is concentrated in its massive real estate business.
The firm's fourth-quarter private equity results paint a mixed picture but hint that momentum is building for improved performance.
Full-year 2023 private equity performance declined across three key metrics — inflows, deployment and realizations — led by the 54.9% year-over-year drop in inflows, or new capital commitments by investors, to $23.80 billion. But on a quarter-to-quarter bases, Blackstone posted better numbers in each category, doubling inflows to $7.15 billion in the fourth quarter after raising $3.55 billion from investors in the third quarter.
Management estimated that the value of the corporate private equity portfolio appreciated 3.5% in the fourth quarter. Its value grew 12.1% over the course of 2023, the firm reported.
In the aggregate, companies in Blackstone's private equity portfolio reported 7% year-over-year growth in fourth-quarter operating revenue as costs came down and margins improved, Gray said.
"On the inflation front, wage growth continued to moderate. And for the first time in two-and-a-half years, the majority of our surveyed companies are not finding it challenging to hire workers," he said.
The firm reported $80 billion in dry powder available to deploy into new private equity investments, down 7.7% year over year.