What happened
Last year was a brutal one for investors. After peaking on Jan. 3, the S&P 500 spiraled lower, ending 2022 20% below its peak.
The bear market in stocks weighed heavily on Blackstone (BX +4.41%). Its shares tumbled 41.4%, according to data provided by S&P Global Market Intelligence. The market turbulence caused investors in some of Blackstone's funds to pull their money out even though those vehicles were outperforming. That induced fears that it might face some liquidity issues.
NYSE: BX
Key Data Points
So what
Last year was like something out of a Charles Dickens novel for Blackstone. On the one hand, it was the best of times for the company. Investors continued to pour money into its funds. Inflows came in at $44.8 billion in the third quarter and were $337 billion over the trailing-12-month period. These inflows increased its total assets under management by 30% to over $950 billion. That helped boost its fee-related earnings by 51% in the third quarter to $1.2 billion.
However, 2022 quickly turned into the worst of times for Blackstone. The company received a flood of redemption requests from investors in its non-traded REIT, Blackstone Real Estate Income Trust (BREIT), toward the end of the year. They exceeded the company's cap of 2% of its net asset value in a calendar month and 5% in a quarter. As a result, it had to limit redemptions.
BREIT had been a big earnings growth driver for Blackstone as high-net-worth investors piled into the REIT to capitalize on its high income yield and lower volatility. However, investors, especially in Asia, chose to sell their shares -- which held their value due to BREIT's strong performance -- to cover losses elsewhere. That caused the market to worry BREIT could face liquidity issues, which would weigh on Blackstone's growth prospects.
However, BREIT took steps to address those fears by cashing in on its casino property investments in Las Vegas. It sold its 49% stake to its partner for $1.27 billion, locking in a more than $700 million profit. BREIT also got a big vote of confidence in early 2023 when UC Investments agreed to buy $4 billion in shares it will hold for at least six years.
Now what
Blackstone bet heavily on the retail investor market by creating products like BREIT to provide high-net-worth clients access to private investments. While that strategy caused some issues toward the end of 2022, the company believes that high-net-worth investors are worth the effort because of the enormous untapped growth potential. With Blackstone taking steps to stabilize BREIT, investors should start having more confidence in that vehicle's health. As that happens, it should help lift the weight on Blackstone's stock, which could help shares recover in 2023.
