Management scale and investment income have both skyrocketed. Blackstone made a net profit of US$1.3 billion in the second quarter, and its market value surpassed Goldman Sachs

In the next era, PE will begin to fight for perpetual capital.

Last quarter, Blackstone continued to make great profits. On July 22, Blackstone released its financial report for the second quarter of 2021, and its revenue once again set a new record. The financial report shows that the Blackstone Group’s net profit in the second quarter reached US$1.31 billion, which was double the same period last year. Schwarzman stated that the second quarter of this year was the largest quarter of Blackstone’s fund appreciation in history.

Blackstone’s distributable earnings per share in the second quarter reached 82 cents, exceeding the 78 cents average analysts expected. After the release of the financial report, the Blackstone Group’s stock price rose 4.1% on the evening of July 22, pushing its market value to a record high of $132.9 billion, surpassing another heavyweight company on Wall Street and the veteran investment bank Goldman Sachs Group.

Both management scale and investment income have skyrocketed

The total revenue of the Blackstone Group in the second quarter reached US$5.29 billion, a year-on-year increase of 110%. Behind the soaring income is the management scale and investment income both hit new highs.

Although it is already the world’s largest PE, Blackstone’s management scale still maintains rapid growth. As of the end of the second quarter, Blackstone’s AUM reached $684 billion, an increase of 21% year-on-year. Among them, the scale of fee-based asset management was 498.9 billion U.S. dollars, a year-on-year increase of 14%. At this rate of growth, the world will witness the birth of the first trillion-dollar PE in a few years.

The growth of scale has brought huge management fee income to Blackstone. In the second quarter, Blackstone’s management and consulting fee collection reached 1.2 billion US dollars, a year-on-year increase of 24%.

In terms of investment income, all business lines are fully blooming and have achieved very good results. Among them, the most eye-catching is the private equity sector. Corporate private equity funds, tactical opportunity funds, and secondary funds all performed well. Among them, corporate private equity funds appreciated by 52% year-on-year.

The performance of each business line of the Blackstone Group, extracted from the financial report

The strong appreciation across asset classes brought Blackstone’s confirmed investment income to US$4 billion, which was a loss for the same period in 2020. In the second quarter, Blackstone had two blockbuster IPOs, TaskUs, an American business services company, and SonaComstar, an electric car parts manufacturer in India, bringing performance distribution revenue to US$800 million, eight times that of the same period last year.

In addition to the IPO, Blackstone also completed an important exit in the real estate sector. The Blackstone Group sold its Australian warehousing and logistics assets to a joint venture company formed by GIC and ESR for US$2.9 billion. ESR is the largest logistics real estate management company in the Asia-Pacific region. This is the largest private real estate transaction in Australia’s history.

Holding 130 billion U.S. dollars in ammunition, heavy layout insurance

Since the second half of 2020, global asset prices have risen, IPOs have been hot, and major PEs have made a lot of money. As the world’s largest PE, Blackstone is naturally one of the biggest winners. Whether it is fundraising, financing or exiting, Blackstone is at its peak since its establishment.

In the first half of 2021, Blackstone has invested 41.5 billion U.S. dollars. As of the end of June, Blackstone’s investable gold has dropped by approximately 18 billion U.S. dollars compared with the end of March, but it is still as high as 130 billion U.S. dollars. The well-stocked Blackstone has been sweeping goods around the world at full capacity since 2021. In transactions over US$2 billion alone, there are:

  • Acquired a majority stake in SOHO China for HK$23.656 billion;
  • US$10 billion acquisition of real estate trust QTS;
  • Together with Carlyle, Hellman & Friedman, invested in Medline, the largest privately-owned manufacturer and distributor of healthcare products in the United States, and the transaction scale reached US$23.8 billion, setting a new industry record.
  • Acquired Mphasis, a financial technology company, for US$2.8 billion.

Entering the second half of the year, Blackstone did not intend to stop. Last week, the Blackstone Group entered into a $7.3 billion deal with insurance company AIG.N to purchase AIG.N’s apartment portfolio assets and nearly 10% of the shares in the life and retirement insurance division, which will be transferred from AIG.N. Spin it out. This is a strategic investment that greatly enhances Blackstone’s layout in the insurance field. According to Blackstone President Jonathan Gray, this transaction will bring Blackstone an additional US$50 billion in assets under management, bringing Blackstone’s insurance business AUM to more than US$150 billion.

Jonathan Gray said on the earnings call that more investment should be considered, global trends should be identified, and ways to invest funds should be found. Economic fields such as logistics, software, digital payment, and life sciences are currently experiencing tremendous growth.

The Blackstone Group is actively betting on the recovery after the epidemic. Jonathan Gray revealed that the current proportion of hotel assets in Blackstone’s real estate portfolio is approximately 7%, and this proportion will rise in the future. He said: “We do believe that people will start to travel again, whether it is personal travel, leisure travel or corporate travel, so we are very optimistic about this sector.” In March 2021, the Blackstone Group spent US$6 billion to acquire American budget hotels. Project e xtendedStay America.

Blackstone’s evolution: sustainable capital becomes the new protagonist

In the second quarterly report, there is another figure worthy of attention, that is, the scale of Blackstone’s perpetual capital has increased by 55%, reaching 169.5 billion US dollars, which has accounted for a quarter of the total asset management scale. In fact, most of the growth in Blackstone’s AUM and management fees in the second quarter came from perpetual capital.

As the name implies, Perpetual Capital does not return cash to LPs and can be used for investment on a rolling basis. This means that Blackstone does not need to raise funds periodically and has stable capital and management fee income. This is a product that changes the rules of the PE game.

No GP likes to raise funds. Realizing the sustainability of the fund is probably the common dream of VC/PE. As the global leader in PE, Blackstone is turning this dream into reality.

In the past few years, Blackstone has been pushing for perpetual capital. AUM has maintained a growth rate of about 50% every year, and its share in the total AUM has increased rapidly.

2018-2021 Blackstone Group’s perpetual capital AUM and its proportion, 100 million U.S. dollars

Blackstone’s perpetual capital is mostly composed of real estate funds, but it also covers other businesses such as private equity, hedge funds, and credit. For example, the BPP Life and Health Fund established in 2020 is a perpetual investment fund.

As the scale and proportion of perpetual capital continue to increase, Blackstone will no longer be an ordinary PE. Jonathan Gray once compared the traditional private equity business to growing crops. He said: “Sow seeds, cultivate for a period of time, harvest, and sow new seeds. This is a great model, but it is no longer the only strategy in the minds of the Blackstone Group.”

With perpetual capital, Blackstone can grow perennials. Jonathan Gray explained its benefits: “Its value continues to increase, and management costs are constantly incurred. In most cases, it will generate recurring performance income without the need to sell assets. This will improve Blackstone’s profit growth and quality.”

To some extent, perpetual capital will make Blackstone become more like Berkshire Hathaway, a Berkshire Hathaway company that mainly invests in the primary market. The first benefit is Blackstone’s stock price. Bloomberg Finance analysts pointed out that the open market likes the stability of management fee cash flow brought by perpetual capital, while other types of income, such as performance-driven income, are not valued high by the market. Blackstone’s stock price has risen steadily over the past year, and it has doubled compared to July 2020. China is currently brewing listed venture capital institutions, from Blackstone who can get inspired.

In addition to Blackstone, the perpetual capital scale of other US PE giants such as KKR is also expanding. In the next era, PE will begin to fight for perpetual capital.

Posted by:CoinYuppie,Reprinted with attribution to:
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