By Isla Binnie April 23 (Reuters) - Blackstone, the world's largest alternative asset manager, posted on Thursday rising inflows and a jump in income from cashing in on investments for the first
Blackstone defends private credit as assets swell past $1.3 trillion
Blackstone’s Performance and Private Credit Market Trends
By Utkarsh Shetti and Isla Binnie
April 23 (Reuters) - Blackstone executives backed the appeal of private credit even as sentiment around the category falters, after the world's largest alternative investment manager reported strong inflows that pushed its total assets under management past $1.3 trillion
Market Sentiment and Sector Performance
Managers of alternative assets - a wide range of securities that live outside traditional stock and bond markets - have seen their shares slide on fears of slower future growth, potential AI disruption to their portfolio companies and questions around lending standards.
Impact of AI and Software Industry Jitters
The software industry - where private equity investors and lenders ploughed capital during a low-rate era after the peak of the COVID-19 pandemic - is facing renewed investor jitters, leading to a sharp selloff in stocks perceived as exposed to rapid advances in artificial intelligence.
Asset Manager Stock Performance
Shares of asset managers were hit across the board on Thursday as another bout of worries hit software stocks. Blackstone was down about 6%, while KKR, Ares, Carlyle and Apollo slid between 3.5% and 5%.
Blackstone's shares had rebounded this month, but were still trading nearly 16% lower for the year as of Wednesday's close. The S&P 500 financials sector index was down more than 4% this year.
Private Credit Still 'Strong'
Institutional Support and Redemption Trends
Blackstone's executives sought to ease investor anxiety over private credit, pointing to strong long-term returns and continued demand from institutional investors.
"Despite the external noise, our institutional and insurance clients, who represent 75% of our credit platform assets under management, have continued to commit large-scale capital to the asset class," CEO Stephen Schwarzman said in a call with analysts.
Blackstone's flagship private credit fund, BCRED, was hit with a surge in withdrawals adding up to a bigger-than-usual $3.7 billion in the first quarter, resulting in net outflows.
Redemptions in the fund were led by a handful of large investors rather than smaller investors, Chief Operating Officer Jonathan Gray said.
Investor Behavior and Redemption Patterns
"The great mass by number of smaller investors tends to stick with the product over a long period of time. It's sort of the bigger boulders as opposed to the pebbles, where you get more movement in terms of redemptions."
Returns and Performance Metrics
Net returns in its private credit strategies were flat for the first quarter and 5.7% over the last 12 months. That compares with gains of 2% in the same quarter last year and 10.8% for the 12 months before that.
Spotlight on Deals
M&A and IPO Activity Amid Geopolitical Uncertainty
Though the war in Iran has led to some caution in M&A and IPO timelines, executives across Wall Street have said any signs of stability will prompt an acceleration.
Blackstone's top bosses struck a similar tone. While volatile market conditions had pushed some exit pipelines, a "durable resolution" of the conflict would boost activity in the second half of the year, CFO Michael Chae said.
Recent Transactions and Inflows
Still, Blackstone's net realizations rose 26% to $448.4 million, on a boost from the private equity business.
Blackstone sold stock in Medline, the medical devices maker it took public last year, which soared from its offer price of $29 and is now trading around $47. It also sold space technology provider ARKA to U.S. defense contractor CACI International.
Institutional Investor Contributions
Institutional investors, typically including pension funds, insurers and other holders of large capital pools who can lock up their funds for long stretches of time, contributed one of their biggest quarterly funding hauls to Blackstone's credit business in its history, the company said.
The firm's credit and insurance business contributed the largest chunk of new inflows, bringing in $37 billion, followed by private equity with $20.4 billion.
Financial Results
For the first quarter, distributable earnings, or cash that can be used to pay dividends to shareholders, rose 25% to $1.76 billion, or $1.36 per share. Analysts on average had expected $1.35 per share, according to data compiled by LSEG.
(Reporting by Isla Binnie in New York and Utkarsh Shetti in Bengaluru; Editing by Arun Koyyur and Pooja Desai)
