Most alternative assets appear to simply represent a leveraged play on the stock market.
This seems to be particularly the case with Blackstone (bx extension) – Get a free report, the world’s largest alternative asset manager, and a stock I own. It is headed by legendary CEO Stephen Schwarzman.
Blackstone’s shares are down more than 36% year-to-date, far outpacing the S&P 500’s 16% drop. And last year, when the S&P 500 was up 29%, Blackstone posted a whopping 106% gain. %.
So Blackstone has been moving in the same direction as the stock market, but at a much faster pace in both directions.
The company’s investments largely consist of private equity, hedge funds and real estate. And this has been a bad year for all three of us.
The S&P Listed Private Equity Index, which includes Blackstone and other private equity firms, is down 29% this year. This doesn’t measure private equity investments directly, but it does give you an idea.
And the FTSE Nareit All Equity REIT Index lost 22.35%. This measures listed properties, while Blackstone mainly invests in privately owned properties. But again it gives you an idea.
For hedge funds, the HFRI Fund Weighted Composite Index is down 4% year-to-date through November.
Blackstone also invests in credit and insurance.
Inflation, interest rates, economy
All of its asset classes have suffered from raging inflation, rising interest rates and economic sluggishness.
Meanwhile, Blackstone’s dividends were up at the start of the year compared to 2021, presumably because it continued to sell assets at a profit. But the dividend plummeted in the third quarter, with that payout annualizing at a 4.37% yield.
So where does Blackstone go from here? Given the company’s history, it seems logical to assume it will move in the same direction as the stock, but further and faster.
Many experts believe the Federal Reserve will stop raising interest rates mid-year and that stocks will rise in response. But of course there’s no guarantee that it will actually happen.
Morningstar analyst Greggory Warren likes Blackstone, giving it a narrow moat (competitive advantage). He puts fair value for the stock at $115, up from a recent quote of $83.
Blackstone is “preeminent”
“We consider Blackstone the preeminent alternative asset manager, with $950.9 billion in total assets under management (AUM) at the end of September,” he wrote in a commentary.
“The company has scale in each of its four business segments.”
This includes private equity, which represents 24% of AUM with fees and 31% of core management fees; real estate, which represents 39% and 40%; credit and insurance, which represent 27% and 20% respectively; and hedge fund solutions, which account for 10% and 9%.
“Blackstone has also built a large employee base, including executives, consultants and internal advisers,” said Warren.
These people “have decades of industry experience and can successfully revitalize a business or property through cost reductions, acquisitions or other strategic maneuvers.”
This has “provided Blackstone with the ability to not only raise but also retain assets under various market conditions, as well as a means to differentiate itself from peers,” Warren said.
The company enjoyed $44.8 billion of capital inflows during the third quarter of 2022, and $337.8 billion in the past year was sitting on $182 billion of dry powder as of Sept. 30.
“Blackstone continues to be our top pick of the three alternative asset managers we cover,” which also includes KKR (kkr extension) – Get a free report and Carlyle Group (GTC) – Get a free reportWarren said.
The author of this story owns shares in Blackstone.