Earnings
Blackstone sees a 'golden moment' in private credit after bank failures
April 20, 2023
One of the world's most storied asset managers sees a historic opportunity for growth in private credit.
In the wake of a slew of bank collapses, including Silicon Valley Bank, Signature Bank, and a few regional banks, Blackstone is reaffirming its position as a private credit provider. In its Thursday morning Q1 2023 earnings call, leadership emphasized the rising demand for private credit solutions from clients.
"This is a golden moment for [private credit solutions]," Jonathan Gray, president and COO, said on the call.
At Blackstone, total credit and insurance AUM increased 9% to $291.3 billion year-over-year, including $6.3 billion in inflows from its global direct lending strategy in Q1. Capital deployment reached $4.8 billion in Q1 and grew to $39.8 billion over the last 12 months. The firm's private credit strategy generated a gross return of 3.4% for the quarter.
"We believe this could be a historic opportunity for capital deployment [in private credit]," said CEO Stephen Schwarzman.
Private credit net realizations, the actual amount of money paid back to investors, grew 21% over the last 12 months, and segment distributable earnings increased 67% over the same period.
"We expect private credit and insurance to grow exponentially from here," Gray added.
The recent banking crisis triggered a pullback in lending across industries, creating an opportunity for Blackstone to intervene with private credit products.
"In their minds, the SVB crisis and pullback from regional banks will allow them to further advance their credit platform at a faster rate than they thought," said Kyle Walters, an associate private equity analyst at PitchBook.
As far as its private equity strategy goes, Blackstone is playing it safe in its capital deployment. The firm deployed only $3.6 billion in Q1, a $3.9 billion drop from Q1 2022. And over the last 12 months, Blackstone deployed $25 billion, down $11.2 billion from last year's figure. Meanwhile, segment distributable earnings dipped 31%.
These figures are products of the constrained capital environment, as investors are wary of exiting their investments into a tumultuous market. On the call, Schwarzman emphasized the firm's philosophy of investing for the long term: With the majority of its capital locked up in lengthy investments and perpetual capital strategies, he said the firm's PE strategy allows for slowed deployment and means that it won't be forced to exit into a difficult market.
"One of our core values is to avoid losing our customers' money," he added.
Blackstone's leaders also emphasized the difficult PE fundraising environment multiple times during the earnings call. From 2021 to 2022, total PE capital raised fell 17.2%, and over a third of total 2022 fundraising capital was concentrated in the world's largest funds, according to PitchBook's 2022 Annual Global Private Market Fundraising Report.
The tightened fundraising environment is largely a product of the denominator effect, which hit institutional portfolios last year when public equities fell, overweighting the private portions of their investments and constraining their ability to allocate more capital to the asset class.
Despite headwinds, the asset manager's total private equity AUM grew 7% to $287 billion YoY, spearheaded by inflows into its infrastructure fund, Blackstone Infrastructure Partners, and its second Blackstone Growth Fund, part of its growth equity strategy. Fee-related earnings also grew 7%.
Blackstone's corporate PE strategy appreciated 2.8% in the quarter, a 0.8% decline over the last 12 months, while its secondaries funds appreciated 1.4% and 1.7%, respectively.
Featured image by Casimiro PT/Shutterstock
In the wake of a slew of bank collapses, including Silicon Valley Bank, Signature Bank, and a few regional banks, Blackstone is reaffirming its position as a private credit provider. In its Thursday morning Q1 2023 earnings call, leadership emphasized the rising demand for private credit solutions from clients.
"This is a golden moment for [private credit solutions]," Jonathan Gray, president and COO, said on the call.
At Blackstone, total credit and insurance AUM increased 9% to $291.3 billion year-over-year, including $6.3 billion in inflows from its global direct lending strategy in Q1. Capital deployment reached $4.8 billion in Q1 and grew to $39.8 billion over the last 12 months. The firm's private credit strategy generated a gross return of 3.4% for the quarter.
"We believe this could be a historic opportunity for capital deployment [in private credit]," said CEO Stephen Schwarzman.
Private credit net realizations, the actual amount of money paid back to investors, grew 21% over the last 12 months, and segment distributable earnings increased 67% over the same period.
"We expect private credit and insurance to grow exponentially from here," Gray added.
The recent banking crisis triggered a pullback in lending across industries, creating an opportunity for Blackstone to intervene with private credit products.
"In their minds, the SVB crisis and pullback from regional banks will allow them to further advance their credit platform at a faster rate than they thought," said Kyle Walters, an associate private equity analyst at PitchBook.
As far as its private equity strategy goes, Blackstone is playing it safe in its capital deployment. The firm deployed only $3.6 billion in Q1, a $3.9 billion drop from Q1 2022. And over the last 12 months, Blackstone deployed $25 billion, down $11.2 billion from last year's figure. Meanwhile, segment distributable earnings dipped 31%.
These figures are products of the constrained capital environment, as investors are wary of exiting their investments into a tumultuous market. On the call, Schwarzman emphasized the firm's philosophy of investing for the long term: With the majority of its capital locked up in lengthy investments and perpetual capital strategies, he said the firm's PE strategy allows for slowed deployment and means that it won't be forced to exit into a difficult market.
"One of our core values is to avoid losing our customers' money," he added.
Blackstone's leaders also emphasized the difficult PE fundraising environment multiple times during the earnings call. From 2021 to 2022, total PE capital raised fell 17.2%, and over a third of total 2022 fundraising capital was concentrated in the world's largest funds, according to PitchBook's 2022 Annual Global Private Market Fundraising Report.
The tightened fundraising environment is largely a product of the denominator effect, which hit institutional portfolios last year when public equities fell, overweighting the private portions of their investments and constraining their ability to allocate more capital to the asset class.
Despite headwinds, the asset manager's total private equity AUM grew 7% to $287 billion YoY, spearheaded by inflows into its infrastructure fund, Blackstone Infrastructure Partners, and its second Blackstone Growth Fund, part of its growth equity strategy. Fee-related earnings also grew 7%.
Blackstone's corporate PE strategy appreciated 2.8% in the quarter, a 0.8% decline over the last 12 months, while its secondaries funds appreciated 1.4% and 1.7%, respectively.
Featured image by Casimiro PT/Shutterstock
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