The first half of 2022 was historically bad for investors. The S&P 500 fell 16% in the second quarter and 20% during the first half of the year. That was the largest first-half decline for the stock market in over half a century. Bond markets didn't fare any better, experiencing their biggest drop on record. Put together, the traditional 60/40 portfolio produced its worst return since the Great Depression. 

Abysmal market conditions are usually bad for asset managers because investors typically pull funds out. However, that hasn't been the case for leading alternative asset manager Blackstone Group (BX 0.59%) this year. It delivered outstanding second-quarter results, driven by its superior performance. That enabled the company to rack up management and performance fees, the bulk of which it returned to investors via its lucrative dividend.

Stunning performance

While the stock and bond markets were historically bad for investors during the first half of 2022, Blackstone's investment funds fared considerably better. Co-founder and CEO Steve Schwarzman dove into its performance on the second quarter conference call. He stated:

Limited partners across customer channels rely on us to produce differentiated outcomes, compared to what they can achieve in traditional asset classes. In the second quarter, for example, our flagship strategies again, dramatically outperformed the relevant market indices, most notably in real estate and our hedge fund solutions business. In real estate, while the public REIT index fell 17% in the quarter, our Core+ funds were up 2.3%. I'll do that again for you. The index is down 17%; we were up 2.3%.

Overall, Blackstone's real estate strategies appreciated 9% to 10% during the first half compared to a 20% decline in the REIT index. Meanwhile, its asset management business delivered positive returns in the second quarter and 1.8% growth for the first half, delivering significant outperformance compared to public markets. "This is exactly what Blackstone asset management products are designed to do in down markets," stated Schwarzman. He noted, "These results frankly are stunning compared to the losses, most investors are experiencing."

That strong performance enabled Blackstone to generate over $2 billion in distributable earnings ($1.49 per share) for its investors in the second quarter -- marking its second-best quarter ever -- driven by 45% growth in fee-related earnings and record realizations. The company distributed the bulk of those earnings to investors via its dividend, paying $1.27 per share for the second quarter. That brought its total payout to $5.13 per share over the past year, implying an annualized yield of more than 5% on the current stock price.

Focused on pockets of strength

Blackstone had been preparing for market conditions to change for a while; COO Jon Gray noted on the call that they expected interest rates to rise and market multiples to normalize. Gray stated:

These views informed our investing, leading us toward owning floating rate debt, hard assets with shorter duration income streams, and high-quality companies with limited exposure to input costs and with pricing power. We also pursued attractive cyclical opportunities such as the travel recovery theme, and we did not lose our discipline even as we invested in faster-growing sectors, always keeping a sharp focus on profitability.

One of the drivers of the company's investment success this year has been the thematic approach taken by its $320 billion real estate business. That segment posted a record quarter, driven by its emphasis on investing in sectors benefiting from rent growth that outpaces inflation. COO Jon Gray noted on the call that logistics and rental housing -- its two largest focus areas -- are experiencing the strongest fundamentals it has seen.

Gray remarked, "In logistics, e-commerce tailwinds and corporates moving away from just-in-time inventory have driven vacancy toward all-time low levels. We estimate rental growth in our U.S. and Canadian logistics markets exceeded 40% year-over-year in the second quarter." Meanwhile, Gray pointed out, "And in our U.S. multifamily markets, rents grew 19% based on the most recent data for May."

Blackstone also benefited from its outsized bets on industries it believed would recover from the pandemic's impact. Gray noted, "We saw a strong appreciation in our travel, leisure, and energy holdings." While these sectors have a 5% weighting in the S&P 500, they make up 28% of Blackstone's corporate private equity business. That larger weighing to recovering markets helped Blackstone deliver superior returns for its investors this year.

Leading the way

Blackstone's investment approach has paid huge dividends this year. The company delivered superior performance for its investors in its funds by focusing on investments it believed would outperform as market conditions changed. That positions it to continue leading the market as it recovers, potentially enabling Blackstone to deliver even bigger dividends for its investors in the future.