By Chibuike Oguh
NEW YORK (Reuters) -Blackstone Inc said on Thursday that its third-quarter distributable earnings fell by a steeper-than-expected 12% year-on-year, as high interest rates weighed on asset values and discouraged the world's largest manager of alternative assets such as private equity and real estate from cashing out.
Blackstone (NYSE:BX) Chief Executive Stephen Schwarzman told analysts on a conference call that while the firm's holdings continued to generate earnings, the high interest rates had hurt corporate valuations and pushed Blackstone to hold onto some assets for longer.
"The environment today is less favorable for realizations, so we've chosen to sell less," Schwarzman said.
Blackstone shares were trading down 6.4% at $95.64 in afternoon trading.
Distributable earnings, which represent the cash available to pay dividends to shareholders, fell to $1.2 billion in the quarter, from $1.4 billion a year earlier. That translated to distributable earnings per share of 94 cents, which missed the average analyst estimate of $1.01, according to LSEG data.
Blackstone said its net profit from asset sales fell 36% to $259.4 million, weighed down by the higher interest rates set by the Federal Reserve to fight inflation and geopolitical tensions that have restricted global mergers and acquisitions activity.
"We see Blackstone facing a moderating outlook, with higher-for-longer rates impacting fee earnings, fundraising, and investment realizations," CFRA analyst Kenneth Leon wrote in an investor note. He downgraded his rating on Blackstone to "hold" from "buy."
The slump in asset sales was concentrated in Blackstone's real estate division, where realized performance revenue plunged 88% to $17.4 million. Fee-related earnings, including earnings from lucrative management and advisory fees, fell 5% to $1.12 billion.
Blackstone President Jonathan Gray told analysts on the call that the firm was affected by the high interest rates in the real estate sector even though it had shifted its portfolio to more resilient segments, such as warehouses, data centers and student housing.
"In certain other areas of the portfolio, including our U.S. apartment buildings, we're seeing moderation in growth," Gray said.
During the quarter, Blackstone became the first private equity firm to join the benchmark S&P 500 index. It has a market capitalization of $125 billion and its total assets under management remain above $1 trillion.
Blackstone said its private equity portfolio rose 2.4%, compared with a 3.65% decline in the S&P 500 over the same period.
Infrastructure funds gained 11% and private credit funds appreciated by 4.6%. Opportunistic real estate funds dropped 2%.
Blackstone raised $25.3 billion of new capital during the quarter, spent $12.4 billion on new acquisitions and retained $200.6 billion of unspent capital.
It declared a dividend of 80 cents per share, up from 79 cents in the prior quarter.