Blackstone, the top investor from the PEI 300 list of biggest fundraisers, has reaped more perpetual AUM in the third quarter of this year than many firms will ever raise, it revealed on Thursday in its latest earnings call.
Nearly half of $148 billion in inflows the firm took in over the last 12 months – $47 billion in the third quarter alone – was perpetual. Perpetual AUM increased 70 percent year-on-year to nearly $200 billion across 16 unique vehicles, according to president and chief operating officer Jonathan Gray.
Blackstone’s “increasingly perpetual” capital allows the firm to broaden its client base and investible universe, like “a ship moving from a narrow channel into open waters”, Gray said on the call.
The scaling of perpetual strategies “is transforming the firm’s earnings profile” with its compounding effect, according to chief financial officer Michael Chae. The strategies primarily involve management fees that benefit from accelerating inflows and appreciation in net asset value. Fee-related performance revenues crystallise on a recurring schedule without asset sales, he added.
The company’s real estate business has been the largest driver of expansion in perpetual AUM, Gray said. Blackstone raised $10 billion in this area in the third quarter alone from institutional and retail clients.
In infrastructure, as the firm’s $14 billion perpetual vehicle is now more than 80 percent committed, fundraising has been reopened. Given the “vast” opportunity set, Gray said the firm expects this business to grow “significantly” over time.
Another area of perpetual capital is GP stakes. Blackstone has recently taken minority stakes in Chicago-headquartered GTCR and mid-market firm Sentinel Capital Partners, with another transaction in progress, according to Gray. The three deals together will total more than $1.5 billion in value.
The firm’s overall AUM increased 25 percent year over year to an industry record of $731 billion, chief executive Stephen Schwarzman reported on the call. Blackstone isn’t worried about deploying, given its massive war chest: $37 billion was invested in the third quarter, with an additional $30 billion committed.
Scale is an advantage. Gray pointed to 13 public-to-private transactions in the year to date, which are often difficult for other firms to navigate because of their size and complexity. Blackstone is also broadening its platform: the 10 largest transactions in the quarter were invested from vehicles that didn’t exist five years ago, including the REIT, infrastructure, credit and core private equity vehicles.
“Deploying capital for us at scale has gotten easier because we have more oars in the water,” Gray said.
In an environment deeply impacted by the pandemic, the corporate PE fund has appreciated 49 percent over the last 12 months by seeking out strong growth opportunities, according to Schwarzman.
The opportunistic real estate funds appreciated 36 percent in the same period. Nearly 70 percent of that portfolio is concentrated in the “fast-growing areas” of logistics, rental housing and life science office sectors, up from 10 percent a decade ago, Schwarzman added.
Overall, the portfolio is well-positioned for future cycles, Schwarzman said, including a likely cycle of rising interest rates. In PE and real estate, the firm is focused on high-quality companies and assets “in the best secular neighbourhoods”.
“The fundamental superiority of these investments, leading to faster cashflow growth, should help offset pressure from market multiples that might occur from rising rates,” Schwarzman said.