the second trillion is always the hardest

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At Blackstone, the march to a second trillion dollars in assets is off to a slow start. Three months ago, the House of Schwarzman proudly celebrated being the first “alternative” capital firm to pass into 13 digits.

How long until the next trillion? According to its third-quarter results, total assets under management has climbed about $6bn over the period, well below its normal intake. Even if only a quarter, at this pace it will take 40 years to cross $2tn.

Blackstone shares are up roughly a third this year after a difficult 2022. The company said the spike in the 10-year Treasury yield, to almost 5 per cent, would exact a toll on consumers, never mind valuations.

A dearth of IPOs and M&A deals has hampered cash-outs for Blackstone. Its cash earnings, which include management fees and realisations, are down 31 per cent, year-over-year.

Managers return far less cash to limited partners. They then cannot recycle money back into funds. The conundrum of private investing is that in times of turmoil, attractive opportunities that do arise make distant profits.

One antidote to falling asset prices is not owning them outright. Chief executive Stephen Schwarzman recently said corporate lending now yields returns in the low-teens or more, earning big profits without much effort. Blackstone has pivoted hard to credit investing. It manages $300bn in this area.

Elsewhere in its portfolio, things are going less well. According to the group, it has marked up its buyout assets this year by 12 per cent. A large portion of its book must be at risk of substantial re-pricing, depending on how long interest rates stay high.

To counter this, Blackstone said it had $200bn of dry power ready to spend. Schwarzman must hope that returns which compound from these new investments will compensate for any losses on the first trillion.