Blackstone Inc. (NYSE:BX) Q4 2023 Earnings Call Transcript

Blackstone Inc. (NYSE:BX) Q4 2023 Earnings Call Transcript January 25, 2024

Blackstone Inc. beats earnings expectations. Reported EPS is $1.11, expectations were $0.98. 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 Fourth Quarter and Full Year 2023 Investor Call. Today’s conference is being recorded. At this time, all participants are in 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: Great. Thank you. And good morning. And welcome to Blackstone’s fourth 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 release and slide presentation which are available on our website. We expect to file our 10-K report later next month. 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 a 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 non-GAAP measures and you’ll find reconciliations in the press release on the Shareholders page of our website. 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 at Blackstone and may not be duplicated without consent. Quickly on results, we reported GAAP net income for the quarter of $109 million. Distributable earnings were $1.4 billion or $1.11 per common share, and we declared a dividend of $0.94, which will be paid to holders of record as of February 5. With that, I’ll turn the call over to Steve.

Stephen Schwarzman: Good morning and thank you for joining our call. Blackstone reported strong results for the fourth quarter of 2023, including our highest distributable earnings in six quarters, which capped a volatile year for global markets. Most major equity indices rebounded from significant declines in 2022, but with wide intra-year swings, driven by historic movements in Treasury yields, economic uncertainty and geopolitical instability. Against this backdrop, Blackstone generated steady fee-related earnings of $4.3 billion for the year, underpinning healthy distributable earnings of $5.1 billion. Performance revenues were down as expected in the context of limited realizations as we choose to sell less in unfavorable markets.

We’ve designed the firm to provide resiliency in times of stress and capture the upside as markets recover. In the fourth quarter, as bond yields declined and markets rallied, we executed several realizations, driving strong sequential growth in DE to $1.4 billion. 2023 was also a year of important milestones for Blackstone. We were the first alternative manager to surpass $1 trillion of assets under management. We were also the first in our sector to be added to the S&P 500 index, positioning our stock be even more widely owned. We were pleased that BX shares ranked in the top 20 best performing out of the 500 stocks in the S&P 500 index last year. Blackstone is now the 55th largest US public company by market cap, exceeding the market value of all other asset managers.

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Q&A Session

In December, we released our sixth annual holiday video, which has received over 8 million views, which may not say something about our limited acting skills, but it certainly says something about the Blackstone brand. Our funds appreciated overall in 2023, highlighted by strength in credit, infrastructure, corporate private equity and life sciences, even as we weathered the difficult environment for real estate. Stepping back, over the last two years, the campaign by central banks to control inflation has resulted in muted returns for most traditional asset classes. The S&P 500 returned only 3% over two years, while the median US stock actually declined 9% and the REIT index was down 14%. Their traditional 60/40 portfolio lost value, down 3%.

In contrast, Blackstone’s flagship strategies generated positive appreciation over this period and meaningfully outperformed the relevant public indices. For example, our corporate private equity funds appreciated 12% over the past two years compared to the S&P up 3%, outperformance of 9%. Our real estate equity strategies appreciated 1% to 6% compared to negative 14% for public REITs. That’s a dramatic outperformance. In credit, our private credit strategies appreciated 25% growth while the high yield index was up only 2%. BAAM generated a 13% gross return to the BPS composite over the past two years, a remarkable achievement in liquid markets and well ahead of the hedge fund index, which actually was down 1%, and that’s an outperformance of 12%.

And finally, our infrastructure business appreciated 33% over the past two years compared to only a 7% return for the S&P infrastructure index. That’s an outperformance of 26%. This outstanding performance is one of the reasons we’ve been able to build this platform from zero six years ago to over $40 billion today. Overall, the ability to outperform market indices over long periods of time is why the alternatives asset class and Blackstone, in particular, continue to have significant momentum. Our limited partners have benefited from the exceptional balance of the firm and the careful way we’ve positioned their capital in a volatile world. One of the key advantages that comes from our leading scale is having more, better and richer private data, which informs how we invest.

And Jon referred to this on television today. Our portfolio consists of over 230 companies, more than 12,000 real estate assets and one of the largest credit businesses in the world. We marshal real time data across these holdings to develop macro insights that we then share across all of our businesses, allowing the firm to adapt quickly to changing conditions. We believe our access to information exceeds that of our competitors, and it positions the firm’s very well as we move towards a world driven by artificial intelligence, an area on which we are already very focused. This process of aggregating data and information helps us identify trends early and often, leads us to differentiated views on what’s happening around the world. In early 2021, for example, it led us to the conclusion that inflation would be higher and more pervasive than the consensus expectation, and we positioned the firm accordingly.

We then started speaking publicly that inflation was moderating as early as October 2022 and with increasing frequency in 2023. Data from our portfolio companies showed that input cost inflation was rapidly declining. We persisted in this view, even when the 10 year Treasury yield spiked to a 16-year high of 5% in October. As we all know, the 10 year subsequently declined over 100 basis points into year-end, the opposite of what many market participants believed would happen. Our access to information is an enduring competitive advantage here at Blackstone. And this advantage grows as we grow larger. As we move into 2024, we know that the rise in investor confidence around the shift from a restrictive monetary policy to one that is more accommodating.

We now believe CPI is running below the Fed’s 2% target after adjusting the reported numbers for shelter costs, which lag what we’ve observed on the ground as one of the largest investors in this area. At the same time, US economy has remained quite strong. Unemployment is nearly unchanged since the start of the Fed’s tightening cycle. Most consumer segments are healthy, corporate balance sheets are strong, and credit fundamental has remained solid. In our own portfolio, our companies are showing strong top line performance overall as well as earnings growth as cost pressures have eased. We see a resilient economy, albeit one that is decelerating. What we’re seeing is consistent with a soft landing. Overall, with the cost of capital moving lower, market confidence returning, we believe we’re entering a supportive environment for our business.