Blackstone’s private equity returns fall in second quarter

The asset manager still expects to cross $100bn in total capital inflows in 2019, having already raised $64bn so far this year.

Blackstone’s private equity strategies generated the lowest returns among all asset classes in the second quarter of 2019.

The firm’s secondaries unit, Strategic Partners, returned a gross -2.6 percent return, driven largely by market volatility in the fourth quarter of 2018. The returns are expected to bounce back in the third quarter because of the two-quarter lag in reporting, chief financial officer Michael Chae said on the firm’s second quarter earnings call Thursday.

Corporate private equity returned 0.7 percent, down from 9.5 percent in the second quarter of 2018. The drop was due to decreases in the public portfolios and some energy positions, Chae said. Tactical opportunities returned 1.3 percent, down from 2.8 percent in the first quarter of 2019.

Over the 12 months to 30 June, corporate private equity returned 9.6 percent, while Strategic Partners and Tactical Opportunities both returned 7.9 percent.

There was no let-up in fundraising, and Blackstone expects more than $100 billion in capital inflows in 2019, according to president and chief operating officer Jon Gray.

The 50 “distinct” Blackstone strategies helped generate $45 billion in LP inflows in the second quarter and $151 billion over the last 12 months – “an unprecedented amount for our sector”, chairman and chief executive officer Steve Schwarzman said on the earnings call.

Private equity raised almost $15.7 billion during the quarter, driven primarily by Strategic Partners and infrastructure, Chae said.

Strategic Partners closed its latest fund on $11.1 billion, the largest amount ever raised for a dedicated secondaries vehicle, while Blackstone Infrastructure Partners closed its first phase of fundraising on $14 billion.

Blackstone’s private equity strategies deployed $8.5 billion during the quarter and $25.7 billion for last 12 months, with an additional $1.6 billion of capital committed. Private equity accounted for almost half of Blackstone’s total $150.3 billion of dry powder, according to the presentation.

The sale of Cloverleaf Cold Storage at a multiple of 3x contributed to $4.7 billion in realisations for the quarter, and $15.7 billion for the last 12 months, Chae said.

Total assets under management increased to $545.5 billion, up 24 percent year-over-year, Schwarzman said. Within that, private equity increased to $171.2 billion, up 43 percent from $119.5 billion the previous quarter.

Blackstone’s perpetual capital pool grew by 42 percent to $91.7 billion across 13 funds in the second quarter, up from $64.3 billion for the same period last year. Within that, private equity perpetual capital grew almost 300 percent to $14.3 billion from $4.7 billion in Q2 2018.

Blackstone’s decision to convert to a C-corporation, announced at the end of the first quarter and effective 1 July, was received positively at its April roadshow. There the firm met almost 100 investors, of which 50 percent had not previously been able to invest in Blackstone because of its structure. Each of these investors had more than $100 million of assets under management, Chae said.

On 1 July, Blackstone’s shares jumped to $46.58 from $44.42 the previous trading day. The share hit a high of $47.48 on 3 July and was trading at $45.43 on Thursday.

With a market capitalisation of more than $54 billion, Blackstone was among the 120 largest public companies in the US and expects to be added to the S&P Total Market, MSCI and CRSP indices, Schwarzman said.