In the face of an industry-wide surge in redemption requests from retail investors affecting non-traded private credit business development companies and interval funds, alternative asset management behemoth Blackstone reported increased assets under management from the private wealth channel and sought to separate “fact from fiction” on the overall state of private credit as it reported first-quarter earnings.
Overall, Blackstone reported AUM in its private wealth platform has reached $310 billion, up 14% year-over-year. In the first quarter, it raised $10 billion, including $7 billion from its evergreen strategies led by BXPE (a semiliquid strategy focused on private equity launched last year), at $2.5 billion. It also reported 18% net annualized return for BXPE’s largest share class and reported that the net asset value of BXPE had reached $21 billion.
For BCRED, its private credit BDC, Blackstone reported $1.9 billion in gross sales along with a rise in repurchases, resulting in net outflows of $1.4 billion. However, the firm’s executives pointed to the fund’s performance and defended private credit as an asset class.
Blackstone also reported that its non-investment grade private credit strategies reported a gross return of 0.6% in the first quarter and 9% for the last 12 months.
“External assertions have ranged from the sector posing systemic risk to the prospect of significant losses of investor capital,” Blackstone CEO Stephen Schwarzman said during an earnings call with analysts. “These assertions, and their dissemination, have negatively impacted capital flows in the wealth channel to private credit strategies, including to our flagship vehicle in the space, BCRED. Despite the external noise, our institutional and insurance clients, who represent 75% of our credit platform AUM, have continued to commit large-scale capital to the asset class.”
Schwartzman added that Blackstone has generated 9.4% net returns annually on its non-investment-grade private credit strategies over the nearly two decades it has operated in the space.
“This track record crosses market and economic cycles, periods of high and low interest rates, and multiple credit default cycles,” he said. “We believe we’re moving toward a period of lower base rates once we work through the impact of the Iran war. We also expect defaults to move higher from historic lows, as we’ve stated previously. We’ve designed our funds with these cycles in mind. With low fund leverage, high current income generation, and the equivalent of meaningful reserves for future potential losses.”
BX Infra, its infrastructure vehicle for private wealth, raised $900 million in the quarter, bringing its total NAV to $5 billion in the five quarters since its launch. BREIT, its non-traded REIT, raised $1.2 billion, a 44% improvement year-over-year and its best quarter in three years. (It also touted the fact that the REIT now has a 23% allocation to data centers in its portfolio.)
The firm also said it planned launches of additional products for the private wealth channel, including BXHF, a perpetual multi-strategy fund targeting more liquid exposures. In addition, it is still developing the previously announced public/private multi-asset strategies it is codeveloping with Vanguard and Wellington Management.
“For investors who want private equity or credit or real estate or infrastructure, now hedge funds, and then these multi-asset areas where we can offer a holistic solution to investors, we think are very special,” Blackstone President and COO Jonathan Gray said during the call. “We continue to invest around the globe, expanding our team, more boots on the ground, and delivering this product.”
In addressing redemptions, Gray compared what is happening with private credit to what the firm’s non-traded REIT experienced two years ago. As with many evergreen private credit funds today, BREIT received redemption requests that exceeded its caps, resulting in proration. However, over the following year, Blackstone worked through the redemption pipeline without long-term damage to the fund.
“We went through a moment, obviously, a few years ago in real estate, and showing that these products can deliver both in terms of their liquidity promises as well as their returns, builds confidence with financial advisors and their underlying clients,” Gray said. “There are incredible levels of disclosure when we’re selling these products. If you look at BCRED, on the cover page, there are six bold, highlighted lines talking about the liquidity limitations. To me, it’s not a surprise that we have more than 300,000 customers, and yet we have not heard complaints from them that they don’t understand that they are trading away some liquidity for higher returns.”