A crack in the Blackstone armor?
Blackstone generated $4+ billion in performance fees (i.e., promotes) over the last 2.5 years. But Jon Gray hinted, while presenting to a Goldman Sachs-sponsored conference last month that 4Q23 incentive fees could disappoint.
From the Goldman conference...
Gray: "The fundamentals, with the exception of office, are pretty good. And then as we look forward, I think there are two potential positives. One, new supply is coming down in the major sectors by 30% to 70%. That's obviously very helpful and sets the stage for a recovery in real estate. And two, rates will come down. And I think the way it will work is, when they settle at a level and the pricing has adjusted and the fundamentals start to look better, people will start to move into the sector. Now, for us, the good news is we have more than $60 billion of dry powder in real estate, and we're not going to wait for the all-clear sign. We're going to start doing things in scale."
Goldman analyst: "On the flip side, we talked a little about deployment, but how does the current backdrop in real estate affect the outlook for realizations and, for Blackstone specifically, performance-related fees?"
Gray: "It is a tougher environment near term on that. You see that in realizations in our opportunistic funds, BREIT, our Core+ real estate business. As an example, we have a life science building vehicle that has a crystalization at the end of the year here in a few weeks. We now expect that we won't hit the 7% hurdle. We won't generate incentive fees from it."
"...I think it goes to our broader story, which is, year, near-term, there are more challenges obviously in realizations and incentive fees, but if you've deployed in really good sectors and, as a firm, what we've done in real estate, our sector selection or in private equity, some of these big areas, what we've done in life sciences, in digitalization, in green energy, I think all of this is going to pay big dividends. And ultimately in our business, it's about the performance we deliver for our customers."
Blackstone reports 4Q earnings later this week.
But more importantly, if Blackstone isn't hitting its promotes, who is?! Many sponsors and fund managers were eying big paydays, but those seem to have largely vanished in a high-rate environment.
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