October 3, 2023

Brighton Journal

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Blackstone becomes the first private equity manager to be worth $1 trillion

Blackstone becomes the first private equity manager to be worth $1 trillion

For years, private equity firms have sought to join a private club: managing $1 trillion in assets, a milestone that would put them in the same league with mutual fund giants like BlackRock and Fidelity and banking giants like JPMorgan Chase.

On Thursday, Blackstone became the first company in the private equity industry to reach that level, bragging in its latest quarterly earnings report that it managed. Assets of just over a trillion dollars As of the end of June.

For companies like Blackstone, reaching this size cements their position as a major player in mainstream finance. On Main Street, the company is probably best known for striking debt-fueled corporate acquisitions, even if in fact it has long branched out into a host of other businesses, from lending to real estate.

“This achievement reflects the extraordinary trust we have developed with our investors,” Blackstone co-founder and CEO Stephen Schwarzman said in a statement. He added that he saw “a great opportunity for further expansion”.

Blackstone, which began as a two-person shop in 1985 at a cost of $400,000, has become a dominant force in the so-called alternative investment industry. He rose to prominence with leveraged buys, the types of transactions made famous by “Barbarians at the Gate” and other 1980s finance annals.

Since then these companies have branched out into almost every corner of finance. In 1991, Blackstone started its real estate business, which is now its largest division and the largest landlord in the country. It has also moved into hedge funds, credit trading, infrastructure investing and more.

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That kind of growth has helped turn Blackstone from relying on deals for the majority of its fees to becoming an asset-raiser that can charge management fees for the funds it oversees. Blackstone’s managers benefited greatly, too: Schwarzman went home $1.26 billion in salaries and earnings last year.

The expansion has also presented Blackstone with more challenges. The bloated size of investment firms like Blackstone has raised questions in Washington about their ubiquitous presence throughout the American economy, from housing to corporate lending to insurance and beyond.

Schwarzman himself has at times come under scrutiny for his large donations to Republican politicians, as well as his interactions with former President Donald J. Trump, a longtime acquaintance, during his administration. (Mr. Schwarzman said that I will not support Mr. Trump in the 2024 presidential campaign). Jonathan D. Gray, the Blackstone chairman and heir apparent to the company, is a major donor to the Democratic candidates.

Several Blackstone companies have been hit hard by economic headwinds recently, reflected in a nearly 40 percent decline last quarter in the company’s distributable earnings, a measure of the money that can be paid out to investors. The company’s private equity division has been hit by a lack of cheap financing, as the Federal Reserve has raised interest rates. Concerns about debt costs and low office occupancy rates also prompted investors to withdraw money from leading Blackstone real estate fund, prompting the company to limit withdrawals.