Q4 2024 Earnings Summary
- Strong recovery prospects in the real estate market, driven by a healthy U.S. economy and a significant decline in new supply starts from over 3% in 2022 to about 1%, a two-thirds decline, which is expected to improve cash flows and asset values. Additionally, borrowing costs have decreased from 9% to 6%, and capital availability has improved, with CMBS issuance up threefold, indicating a favorable environment for real estate investments.
- Improving conditions for private equity exits, with the IPO pipeline doubling from a year ago and the S&P 500 index up 60%, suggesting a strong equity market. The debt markets have improved, with investment-grade and high-yield spreads at record tights, and a better regulatory climate for M&A is leading to increased activity. This sets the stage for a very positive M&A cycle, which could enhance Blackstone’s realizations and earnings.
- Significant growth potential in the private wealth channel, as Blackstone has made enormous early investments in this area, building a dedicated team of more than 300 people. With an estimated $90 trillion in wealth held by individuals with over $1 million in savings, and currently only 1% allocated to private assets (versus 30% for institutional partners), there is substantial opportunity for growth. Blackstone’s strong brand, differentiated products, and track record position it to capitalize on this untapped market.
- The firm's exceptional fourth-quarter results were significantly driven by one-time crystallization events, particularly in the infrastructure business (BIP), which may not recur in future periods, potentially leading to declines in fee-related earnings.
- The real estate portfolio experienced declines due to an 80 basis point increase in the 10-year treasury yield and the stronger U.S. dollar, with the recovery taking longer than expected. This may continue to impact the firm's performance and delay realizations in this segment. , ,
- Uncertainty in the interest rate outlook, with potential for higher rates, could negatively impact private equity activity and real estate performance in 2025.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | ~4.3% increase (from $2.956B to $3.083B) | Steady top‐line growth is driven by the continued strength of fee‐related revenue streams and improved asset performance compared to the prior period, although the increase remains modest, suggesting organic growth rather than new catalysts. |
Net Income | 568% increase (from $198.69M to $1,328.83M) | The dramatic surge is largely attributed to significantly enhanced operating performance, especially improved unrealized performance allocations and higher management and advisory fees that built on improvements observed in previous periods, shifting from a much lower profitability base to a high level in Q4 2024. |
Basic and Diluted EPS | 295% increase (from 0.23 to 0.91) | EPS benefited decisively from the net income breakthrough while the weighted‐average share count remained relatively stable, mirroring the substantial profitability improvements observed previously and highlighting the effective translation of revenue gains into earnings per share. |
SG&A Expenses | ~7% increase (from $316.97M to $339.09M) | The modest rise in SG&A expenses reflects increased spending on operational initiatives and possibly inflationary pressures; however, the controlled increase suggests that expense management was maintained even as the business scaled up, consistent with previous period operational trends. |
Interest Expense | 46% decrease (from $214.97M to $115.53M) | A significant reduction in Interest Expense indicates improved debt management or refinancing efforts compared to the prior period’s higher borrowing costs; this reduction helped bolster net income by lowering financing costs, aligning with a trend of cost efficiencies noted in previous quarters. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
FRE margin | FY 2025 | no prior guidance | Margin stability expected as a starting point for 2025 | no prior guidance |
Management fee growth | FY 2025 | no prior guidance | Double-digit management fee growth | no prior guidance |
Operating expenses | FY 2025 | no prior guidance | Low double-digit growth in operating expenses | no prior guidance |
FRPR | FY 2025 | no prior guidance | Higher incremental margins from Core+ and BREIT | no prior guidance |
Realizations | FY 2025 | no prior guidance | Meaningfully higher in the second half of 2025, real estate exit markets to | no prior guidance |
strengthen over time | ||||
Real estate recovery | FY 2025 | no prior guidance | Confidence in a sustained commercial real estate recovery | no prior guidance |
Credit and insurance | FY 2025 | no prior guidance | Expected to deliver strong financial performance | no prior guidance |
Infrastructure strategy | FY 2025 | no prior guidance | Will be eligible for fee-related performance revenues in Q4 2025 | no prior guidance |
Private wealth business | FY 2025 | no prior guidance | Further acceleration in private wealth fundraising expected | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Operating Expenses (SG&A) | Q4 2024 | Lower rate of year-over-year growth in operating expenses vs. Q3 2024, expected in the “low double digits” | SG&A increased ~7% from 316,974In Q4 2023 to 339,086In Q4 2024, below the “low double-digit” range | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Real estate market and commercial real estate recovery | Mentioned consistently in Q1, Q2, Q3 as bottoming and moving toward recovery | Recovery is underway with improved fundamentals (new starts down from 3% to 1%), borrowing costs declined from 9% to 6% | Consistent topic; sentiment has remained optimistic despite headwinds |
Private wealth channel expansion | Discussed each quarter (Q1, Q2, Q3) showing momentum and higher inflows, including launches of new vehicles | Raised $28B in private wealth for 2024, with an additional $3.7B in January 2025; strong growth in perpetual strategies | Consistent topic; sentiment strengthened further in Q4 |
Private equity exits and M&A cycle | Referenced prior quarters with muted realizations but growing optimism for 2025 | Focus on private equity for near-term dispositions; M&A environment improving with stronger IPO activity and better debt markets | Consistent topic; sentiment becoming more positive |
Interest rate uncertainty and borrowing costs | Discussed every quarter with emphasis on rate cuts or lower borrowing spreads as a tailwind | Borrowing costs improved from 9% to 6%; disinflation signals and balanced labor market support stable rates | Consistent topic; sentiment is optimistic in Q4 |
Private credit platform growth | Highlighted in Q1, Q2, Q3 with strong demand and robust performance | Set record deployment in private credit; platform at $450B in total AUM, inflows of $100B+ in 2024 | Consistent topic; scale and sentiment continuing to rise |
Underperformance in secondary investments | Q3 acknowledged lagging returns and IRR declines in certain secondary vehicles ; recent funds underperforming vs. hurdle rates but long-term track record strong | No mention in Q4 | No updates in Q4; previously noted underperformance in Q3 |
Data center expansions and AI-driven infrastructure | Repeatedly cited as a major growth area, including QTS, Air Trunk, and large AI infrastructure deals in Q1, Q2, Q3 | Largest data center operator with $80B of leased capacity; AI usage drives ongoing demand | Consistent topic; remains high impact with positive sentiment |
Regulatory challenges in European wealth channel | Mentioned in Q2 regarding fragmented regulation and potential long-term opportunities | No mention for Q4 | Not addressed in Q4; previously cited as complex but potentially improving |
One-time crystallization events in infrastructure (BIP) | Discussed in Q1, Q2, Q3 as upcoming crystallizations in infrastructure funds | $1.2B in fee revenues recognized for a 3-year accrual; not recurring in 2025 | Realized in Q4; smaller periodic events expected going forward |
Rising operating expenses and impact on margins | Referenced in Q1, Q2, Q3 with focus on cost management and maintaining FRE margins | OpEx up 11% YoY vs. 10% growth in management fees; stable margin posture but sensitive to fee-related performance revenues | Consistent topic; aim to balance expenses and preserve margin stability |
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Real Estate Recovery Outlook
Q: How do you see real estate recovery ramping in 2025?
A: Jonathan Gray explained that the conditions for real estate recovery are improving due to strong demand from a healthy U.S. economy, leading to demand for logistics, apartments, and hotels. Supply has declined significantly, with new supply starts dropping from over 3% in 2022 to 1%, a two-thirds decline, which is very helpful. Borrowing costs have improved, with overall costs dropping from 9% to 6%, and spreads have tightened. He believes that cash flows will be strong and that the combination of favorable cash flows and a more stable rate environment puts real estate firmly on a recovery path. -
Private Equity and Real Estate Cycles
Q: When will you become a net seller in corporate private equity?
A: Jonathan Gray noted that the environment is improving with a strong economy, the S&P being up 60%, a doubling of the IPO pipeline, and improved debt markets. He expects a very positive M&A cycle, with private equity seeing realizations earlier than real estate. He anticipates they will start monetizing private equity assets sooner, while the real estate cycle lags and will see more activity in the back half of the year. -
AI and Data Center Investments
Q: How attractive is data center infrastructure given new AI developments?
A: Jonathan Gray acknowledged recent developments like Deep Seek that suggest AI models may become less capital and energy intensive. However, he emphasized that they have long-term leased data centers with major companies and do not build speculatively. He believes that as the cost of compute comes down, usage and adoption will increase, leading to continued strong demand for data centers. Comments from Meta and Microsoft highlight the importance of physical infrastructure. They expect data centers and power to remain vital, with any changes in usage being carefully managed based on demand signals from tenants. -
BREIT Flows and Performance
Q: What catalysts could increase retail allocations into BREIT?
A: Jonathan Gray stated that BREIT's future growth is tied to performance. They've navigated a challenging period, providing liquidity to customers for the past 11 months and seeing a 97% decline in net redemptions. Customers are waiting to see a few months of positive NAV growth before increasing allocations. As rates settle and cash flows grow, he believes BREIT will again become a growth vehicle, given the strong customer experience and confidence in Blackstone Real Estate. -
Interest Rate Outlook
Q: How might rates and inflation impact PE and real estate in 2025?
A: Jonathan Gray noted that predicting interest rates is challenging, but their confidence comes from portfolio data showing disinflation. As major owners of rental housing, they see shelter inflation closer to 1% versus the Fed's 4.6%, suggesting that official data is catching up. The labor market appears balanced, with the easiest hiring conditions since the post-COVID period and hourly wage growth at 3.7%, the lowest level. He believes the Fed has the luxury of being patient and that continued disinflation will generally be supportive, albeit at a slower pace. -
Insurance Partnerships Growth
Q: What is the outlook for growth with insurance partnerships?
A: Jonathan Gray highlighted that insurers are increasingly moving assets into private investment-grade credit, viewing it as a necessity rather than a novelty. Blackstone's insurance AUM is up nearly 20%, reaching $230 billion. They see accelerating conversations and partnerships, benefiting from an open architecture model where they serve as a trusted third-party manager. With 23 SMA clients, up 3% from last quarter, and strategic clients showing strong appreciation, they expect significant growth ahead, including opportunities in Asia with partners like Nippon Life. -
Credit Deployment Expectations
Q: How much capital is not yet earning fees in credit, and what's the deployment outlook?
A: Jonathan Gray expects investment pace in credit to grow with incoming capital, especially as they expand into asset-based areas and partner with banks looking to optimize their balance sheets. They foresee more corporate solutions transactions, like the $3.5 billion EQT deal. Michael Chae added that out of $375 billion in total AUM, $265 billion is fee-earning, with about $40 billion not yet earning management fees but eligible, plus another $9 billion in the real estate BREDS business. -
Big 4 Insurance Relationships
Q: How will Nippon Life's acquisition impact your insurance flows?
A: Michael Chae reported that they had $156 billion of AUM from the Big 4 insurance relationships at the end of '24. Jonathan Gray stated that they've been allocated more capital than contractually required, with strong relationships with CoreBridge, Resolution, Fidelity Guaranty, and Everlake. The acquisition of Resolution by Nippon Life is seen positively, bringing additional capital and expertise. They will continue as dedicated asset managers for these partners and expect accelerating growth. -
Perpetual Products Growth
Q: How might your distribution evolve for perpetual products over five years?
A: Jonathan Gray expressed significant optimism for substantial growth in perpetual products. They've invested heavily in this area for almost 15 years, with over 300 people dedicated to private wealth. He believes there's immense opportunity to distribute these products more broadly, leveraging Blackstone's strong brand. With approximately $90 trillion of wealth held by individuals with over $1 million in savings, and only 1% allocated to private assets versus 30% for institutional partners, there's significant room for growth. -
BXPE Fundraising Capacity
Q: Can you ramp BXPE inflows beyond $1-2 billion quarterly?
A: Jonathan Gray stated that they've been steadily building out distribution partnerships for BXPE, expanding within the U.S. and globally, including success in Canada. The key driver is investment performance, and after delivering strong results in the first year, they have confidence in deploying more at scale. As they continue to deliver performance, they expect investors to become more comfortable, which could allow inflows to ramp beyond the current $1-2 billion quarterly pace. -
Retirement Products Outlook
Q: How do you see opportunities in retirement space evolving?
A: Jonathan Gray observed that the retirement business has evolved into a 'have-not' environment, where most private sector workers lack access to private assets in their 401(k) plans. He believes it's logical that private assets will eventually be included in target-date funds, allowing all individuals to benefit. If regulations change, Blackstone is uniquely positioned due to their brand, performance, and breadth of products. He expects this to happen; it's a question of when, not if. -
FRE Margin Expectations
Q: What's the outlook for FRE margins in '25 excluding FRPR?
A: Michael Chae indicated they feel good about their margin position, with management fees expected to grow due to the full-year benefit of flagship vehicles activated in 2024. Base management fees in Q4 were up 10% year-over-year, and they consider that growth rate a reasonable starting point for 2025. Operating expenses grew 11% in Q4, which is also considered a good starting point. They manage compensation holistically across the firm and are investing in new initiatives but overall expect robust margin stability. -
New Multi-Asset Credit Fund
Q: How will the new multi-asset credit fund compare to BCRED?
A: Jonathan Gray noted that the new fund will encompass the breadth of their credit capabilities beyond just direct lending, including asset-backed finance and real estate finance globally. It will be structured differently to be more accessible to investors. He did not provide further details due to legal constraints but suggested that the fund would not cannibalize BCRED and could reach a wider array of distributors. -
Impact of Spread Tightening
Q: How does spread tightening affect FRPR in credit?
A: Michael Chae explained that a 50 basis point decline in base rates impacts fee-related performance revenues by about 4% across the BCRED platform. They have absorbed such impacts over the past 12 months, with BCRED growing at 18%. Jonathan Gray added that spread tightening hasn't significantly impacted them because their portfolios are mostly floating rate, and credit quality is more important than spread tightening. -
BIP FRPR and Margins
Q: What's the trajectory for BIP FRPR and related margins?
A: Jonathan Gray emphasized the extraordinary momentum in their infrastructure business, delivering 17% net returns in an open-ended format. Michael Chae noted that they expect to realize a modest but material amount of incentive fees in Q2. In 2025, infrastructure incentive fees and FRPRs will be recognized in the second and third quarters, not the first and fourth. The FRPR margins for infrastructure are slightly lower than the overall firm due to being in development mode. -
Tariffs and Trade War Impact
Q: How could tariffs or trade war affect your portfolio?
A: Jonathan Gray stated that they don't have many businesses exporting physical goods at scale to the U.S., which is the most at-risk area. While tariffs may rise, it's uncertain which countries or industries will be affected, and negotiations can change rapidly. Overall, they don't see significant impact on their business in Europe and Asia. Michael Chae added that about 75% of their portfolio is in the U.S., 15% in Europe, and a modest single-digit percentage in Asia, providing manageable exposure to non-U.S. markets.