Blackstone Inc. (NYSE:BX) Q1 2024 Earnings Call Transcript

Blackstone Inc. (NYSE:BX) Q1 2024 Earnings Call Transcript April 18, 2024

Blackstone Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day. And welcome to the Blackstone First Quarter 2024 Investor Call. Today’s conference is being recorded. At this time, all participants are in a listen-only mode [Operator Instructions]. At this time, I’d like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead.

Weston Tucker: Thanks, Katie, and good morning, and welcome to Blackstone’s first quarter conference call. Joining today are Steve Schwarzman, Chairman and CEO; Jon Gray, President and Chief Operating Officer; and Michael Chae, Chief Financial Officer. Earlier this morning, we issued a press and slide presentation, which are available on our Web site. We expect to filed our 10-Q report in a few weeks. I’d like to remind you that today’s call may include forward looking-statements, which are uncertain and may differ from actual results materially. We do not undertake any duty to update these statements. For discussion of some of the factors that could affect results, please see the risk factors section of our 10-K. We’ll also refer to certain non-GAAP measures and you’ll find reconciliations in the press release on the shareholders page of our Web site.

Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audiocast is copyrighted material of Blackstone and may not be duplicated without consent. So on results quickly, we reported GAAP net income for the quarter of $1.6 billion, distributable earnings were $1.3 billion or $0.98 per common share and we declared a dividend of $0.83, which will be paid to holders of record as of April 29th. With that, I’ll turn the call over to Steve.

Steve Schwarzman: Good morning, and thank you for joining our call. Blackstone reported strong results for the first quarter of 2024, including healthy distributable earnings of $1.3 billion as Weston mentioned, underpinned by the highest fee related earnings in six quarters. On our January earnings call, following a volatile multi-year period for global markets, we noted an improving external environment and shared our view that 2023 would be the cyclical bottom for our firm. While changing market conditions take time to translate to financial results, including realizations and performance revenues, we are seeing positive momentum across many key forward indicators at our firm. Inflows were $34 billion in the first quarter and $87 billion over the past two quarters.

We invested $25 billion in quarter one and $56 billion in the past two quarters with a strengthening pipeline of new commitments. We’re planting the seeds of future value and what we believe is a favorable time for deployment. At the same time, our fundraising in the Private Wealth channel meaningfully accelerated in the first quarter. Sales for our perpetual life vehicles increased more than 80% from the fourth quarter to $6.6 billion. We’ve stated before that short term movements in stock and bond markets impact capital flows in this channel. But ultimately, flows follow performance as well as innovation as we’re seeing now. We’ve delivered 10.5% net returns annually for BREIT’s largest share class over more than seven years and 10% for BCRED over three plus years.

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Q&A Session

And we continue to successfully launch new strategies, including our private equity vehicle, BXPE, in the first quarter. With $241 billion of AUM in Private Wealth at Blackstone, we have the leading platform in our industry by far. We’ve established a significant first mover advantage with the number one market share for each of our major season products, along with a high percentage of repeat business across strategies. Blackstone is built on long term investment performance. We’ve achieved 15% net returns annually in corporate private equity and infrastructure since inception, 14% in opportunistic real estate and secondaries, 12% in tactical opportunities and 10% in credit. In the first quarter, our funds reported steady appreciation overall, highlighted by strength in infrastructure, credit and our multi-asset investing platform, BXMA.

Our portfolio is in excellent shape, and our limited partners continue to benefit and we’ve positioned their capital, emphasizing new neighborhoods, such as digital infrastructure, logistics and energy transition. The firm’s thematic approach to deployment is informed by the real time data and insights we gather from our global portfolio, which helps us to identify trends early and build conviction around our ideas. Blackstone is the largest and most diversified firm in the alternatives area with over $1 trillion of assets under management and we believe our knowledge advantage consequently is a unique asset in our industry. For example, digital infrastructure, one of the firm’s highest conviction investment themes today, is a powerful example of this knowledge advantage at work.

Just as we recognized the rise of e-commerce nearly 15 years ago and started buying warehouses, we anticipated a paradigm shift around demand for data centers, driven by growth in content creation, cloud adoption and most importantly now, the revolution underway in artificial intelligence. Others now know that AI requires exponentially more computing power and capacity than was previously imagined. On a personal basis, in less than two weeks, I am participating in the dedication ceremony for the Schwarzman College of Computing at MIT, which will be heavily focused on this area. What has Blackstone done with our conviction? We identified QTS, the fifth largest US data center REIT as a well positioned but poorly trading public company with tremendous long term potential.

Our BREIT, BIP Infrastructure and BPP perpetual strategies acquired the company for $10 billion in 2021, and its lease capacity has already grown sixfold in less than three years. Today, QTS is the largest data center company in North America. We are building a variety of other center platforms around the world as well. In total, Blackstone vehicles now own $50 billion of data centers globally, including facilities under construction. And there is an additional $50 billion in prospective future development pipeline. Blackstone is highly differentiated in our ability to conceptualize the new business area and transform it into a $100 billion potential opportunity. We are also actively investing in other companies in AI related areas. We’re buying as well as financing several firms that design, build and service data centers.

We recently financed a cloud infrastructure business supporting AI development. And now we’ve transitioned to addressing the sector’s growing power needs, leveraging our sizable energy infrastructure platform, which includes the largest private renewables developer in North America. There are several other powerful megatrends that we expect to drive the firm forward, both in terms of where we invest and where we raise capital. The most compelling of these today include the secular rise of private credit, where we have one of the world’s largest platforms; infrastructure, energy transition, life sciences and the expansion of alternatives globally and particularly in Asia. In each of these areas, we’ve established leading platforms with tremendous momentum.

Looking forward in 2024, the market environment will remain complex. The economy is stronger than expected but is starting to slow a bit. In terms of inflation, despite the recent US CPI readings, we are seeing a decelerating wage growth and minimal input cost increases across many of our companies. In real estate, we see shelter costs moderating, contrary to government data. We believe inflation will trend lower this year, although, the pace of decline has slowed recently. Geopolitical turbulence, including wars in the Middle East and Ukraine, adds further uncertainty to the business environment. And 2024 is a major election year as we all know with nearly half of the world’s population going to the polls, which injects unpredictability around the future of important policies that impact the global economy.

Blackstone is well positioned against this evolving backdrop. Our portfolio is concentrated in compelling sectors and we have the industry’s largest dry powder balance of nearly $200 billion to take advantage of opportunities. Our long term capital provides the flexibility and firepower to invest while affording us the patience to sell assets when the time is right. The firm itself could not be in a stronger position with minimal net debt and no insurance liabilities, allowing us to distribute $4.7 billion to shareholders over the past 12 months through dividends and share repurchases. And we are in the early days of penetrating markets of enormous size and potential. With that, I’ll turn it over to John.

Jon Gray: Thank you, Steve, and good morning, everyone. We are pleased with the firm’s performance in the first quarter and the momentum building across our business. This momentum is underpinned by three key developments; first, the transaction environment has strengthened; secondly, in private credit, demand from both investors and borrowers is expanding; and third, our private wealth business is reaccelerating. I’ll discuss each of these areas in more detail, starting with the transaction environment. The market backdrop has become more supportive. The 10 year treasury yield is still down from its October peak despite the recent run-up. Borrowing spreads have tightened significantly and the availability of debt capital has increased significantly.

We’re also seeing M&A activity and the IPO market restarting. As we’ve stated before, the recovery will not be a straight line but we’re not waiting for the all-clear sign to invest. We deployed $25 billion in the first quarter and committed an additional $15 million to pending deals, including subsequent to quarter end. We were most active in our credit and insurance area, which I’ll discuss further in a moment. In real estate, we shared our view in January that commercial real estate values were bottoming, providing the foundation for an increase in transaction activity. This has coincided with several major investments by Blackstone. Just last week, we announced a $10 billion take-private of a high quality rental housing platform, Air Communities, which follows our announcement in January to privatize Tricon Residential.