Blackstone Inc. (NYSE: BX) reported second-quarter results that surpassed analyst expectations, driven by a surge in recurring performance fees. However, the company's shares edged lower in early trading on Thursday, reflecting investor caution over margin trends.
The alternative asset manager posted distributable earnings of $1.52 per share, a 26% increase from the prior year and well above the consensus estimate of $1.35 per share. Total distributable earnings reached $1.98 billion.
Revenue from fee-related performance fees soared 68% to $793 million, while management and advisory fees rose 11% to $2.25 billion. Recurring performance fees accounted for 58% of the incremental fee-related revenue, up from 19% of total fee-related revenue a year ago to 26%.
These recurring fees are generated from perpetual funds and are not dependent on asset sales, providing a more stable revenue stream. Blackstone Chief Executive Stephen Schwarzman noted the firm's strategic focus on artificial intelligence, with nine of its top ten investments tied to AI.
Despite the strong earnings beat, shares slipped 0.8% to $121.82 shortly after the market open. The muted reaction may be attributed to the fee-related earnings margin remaining unchanged at 58.6%, as fee-related compensation rose 26% and other operating expenses increased 14%.
The company's capital base continued to strengthen. Perpetual capital grew 15% to $555.6 billion, representing 41% of total assets under management. Fee-earning perpetual capital rose to $463 billion, accounting for 48% of total fee-earning assets.
Investment performance was bolstered by AI-related assets, with gross returns for infrastructure strategies reaching 7.2% in the quarter. Realizations totaled $31.8 billion, and inflows amounted to $68.3 billion. Blackstone declared a dividend of $1.29 per share, payable on August 10.
However, private credit marketed to affluent investors showed weakness. BCRED attracted only $1 billion, down from $1.9 billion in the previous quarter and $3.7 billion in the same period last year. Net returns for private credit fell to 0.4% from 2.2% a year earlier. Increased inflows into private equity helped offset the slowdown in credit.
Blackstone's stock had declined roughly 20% year-to-date as of Wednesday. Analysts suggest that while the earnings beat is positive, the lack of operating leverage and margin improvement may be weighing on investor sentiment. Key risks include declining demand for retail credit, potential reversals in AI valuations, and delays in exits, which could impact fees, carried interest, and future dividends.
