(Bloomberg) -- Blackstone Inc.'s first-quarter profit fell as dealmaking at the world's largest alternative-asset manager slowed in a tumultuous stretch when rising interest rates roiled the markets and banking system.
Distributable earnings fell 36% to $1.25 billion, or 97 cents a share, from a year earlier, New York-based Blackstone said Thursday in a statement. That exceeded the 94-cent average estimate of 16 analysts surveyed by Bloomberg.
While assets under management failed to surpass the $1 trillion mark that analysts predicted, they still rose 8% to $991.3 billion.
Blackstone has grown into a dominant force in the financial universe outside stocks and bonds. It is a giant in take-privates, buyouts and real estate deals. Now it has to wrestle with how the Federal Reserve's rate increases are crimping dealmaking, raising the cost of borrowing and ending a period of rapid growth.
"A slower deal environment is not a shock," President Jon Gray said in an interview. "Things slow given the uncertainty."
Shares of Blackstone rose 1.2% to $93.73 at 10:04 a.m. in New York. The stock had climbed 25% this year through Wednesday, easily outpacing rivals KKR & Co. and Apollo Global Management Inc.
Blackstone dealmakers held back more on cashing out of investments compared with a year ago, bringing proceeds from sales down 22%. They also slowed their pace of making new bets by more than half.
Economic uncertainty is testing investors' appetite for strategies that are harder to trade and value than stocks and bonds. Blackstone had $29.5 billion of net inflows in the quarter, down from $39.9 billion a year earlier.
Its real estate arm was the biggest source of net inflows in the quarter, buoyed by the close of a giant fund for institutions. That offset some of the pain from a backlog of redemptions from the $70 billion Blackstone Real Estate Income Trust. The property fund for wealthy individuals limited redemptions in recent months after more clients tried to get out.
The world's largest owner of commercial property, Blackstone wrote down the valuation of some US offices during the quarter, as many employees continue to balk at returning to workplaces after the pandemic. The firm has been paring its exposure to those properties and now counts US offices as less than 2% of its real estate portfolio, down from 61% in 2007.
Across the firm, fee-related earnings declined 9% in the quarter and writedowns contributed to a drop in net income.
One drag on profit was its investment in Corebridge Financial Inc. Blackstone took a minority stake in the insurer in 2021 in exchange for locking in a deal to manage a growing chunk of its assets over time. Corebridge shares have fallen 15% this year.
Rising interest rates did benefit one business unit. Blackstone's private credit bets were the highest performers in the quarter, delivering 3.4%.
Gray said that the tumult following the collapse of three US regional lenders last month has created investment opportunities — even after Blackstone backed a firm's losing bid for Silicon Valley Bank. Blackstone has been talking to small banks about stepping in to lend alongside them as more look to slim down their balance sheets.
Banks' retreat will create a "golden moment" for credit and pave the way for Blackstone to provide more forms of financing, he told analysts.
Gray told analysts that Blackstone is interested in lending against assets such as equipment and automobiles. He added that there's a bigger opening for Blackstone to provide a form of lending to other private equity funds that is collateralized against a pool of assets.
In an interview with Bloomberg Television, Gray predicted that dealmaking across the industry will pick up by early 2024 at the latest.
--With assistance from Erin Fuchs.
(Updates stock move in fifth paragraph and adds context from call with analysts)
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