By Chibuike Oguh
NEW YORK (Reuters) -Blackstone Inc’s fourth-quarter distributable earnings fell 41% year-on-year as the world’s largest manager of alternative assets said on Thursday it cashed out fewer investments across key portfolios.
Blackstone has been dealing with rising redemptions at its flagship real estate income trust (BREIT), prompting the private equity firm to exercise its right to block investor withdrawals at 5% of the quarterly net asset value of the fund.
BREIT contributes about 17% to Blackstone’s earnings and is marketed to mostly high-net worth individuals. Redemption demand from investors in BREIT totaled about $6.8 billion in November and December, but Blackstone has fulfilled only about $1.4 billion or 21% of such requests to cash out.
Blackstone expects increased redemptions in January as it works through a backlog of requests, Jonathan Gray, Blackstone’s president, said during an analyst earnings call on Thursday.
“Some investors now are making larger requests than they actually want to achieve because they expect to be cut back,” Gray said.
Blackstone also has an outstanding backlog of redemption requests of about 7% or more than $5 billion at the $73 billion Blackstone Property Partners, a non-traded REIT comprised of mostly institutional investors, Gray said.
“Institutional investors understand that liquidity comes from new inflows. And that’s very different than the expectations in the private wealth channel,” he said.
Blackstone’s shares closed at $93.81 on Thursday, up 5.6% from the previous day’s close. The stock lost 43% of its value last year.
Distributable earnings, which represent the cash used for shareholder dividends, fell to $1.3 billion from $2.3 billion a year earlier. That translated to distributable earnings per share of $1.07, which surpassed the average analyst estimate of 95 cents, according to financial data provider Refinitiv.
Higher interest rates, inflation, recession worries and geopolitical tensions from the Russia-Ukraine conflict have prevented private equity firms like Blackstone from selling assets for top dollar.
Blackstone said its net profit from asset sales fell sharply by 55% to $366.9 million during the fourth quarter, down from $817.5 million a year earlier.
Blackstone’s closely watched fee-related earnings fell 39% to $1.1 billion, mostly because fewer asset sales led to lower performance fees.
A bright spot was strong performance in Blackstone’s credit business. Fee-related earnings in the credit portfolio rose 53% to $235.1 million, buoyed by rising interest rates.
Financial market turbulence also weighed on the quarterly performance of Blackstone’s funds.
Its opportunistic and core real estate funds depreciated by 2% and 1.5%, respectively. Secondary funds fell 1.8% while corporate private equity and private credit funds gained 3.8% and 2.4%, respectively. By contrast, the benchmark S&P 500 index rose 7.08% in the fourth quarter.
Under generally accepted accounting principles, Blackstone reported net income of $557.9 million, down 60% from $1.4 billion in the prior year, owing to investment losses.
Blackstone generated net accrued performance revenue of $6.8 billion, spent $18.7 billion on new acquisitions, raised $43.1 billion of new capital and retained $186.6 billion of unspent capital.
It ended the quarter with $974.7 billion of total assets under management and declared a quarterly dividend of 91 cents per share. Blackstone had set a target of reaching $1 trillion in assets by the end of 2022, an ambition it had brought forward from 2026.
(Reporting by Chibuike Oguh in New York; Editing by Josie Kao and Matthew Lewis)