Key Takeaways:
Blackstone’s stock fell 5.7 percent even as the firm reported a 25 percent jump in first-quarter distributable earnings, as weakness in its massive private credit business overshadowed strong results elsewhere and a record $1.3 trillion in assets under management.
“This strategic decision that we made to go long AI infrastructure is going to be the single most important thing for the performance of our clients and ultimately, the growth of our business,” Blackstone President Jonathan Gray said on an earnings call, highlighting the firm’s focus on the high-growth sector.
The world’s largest private asset manager beat analyst estimates with distributable earnings of $1.76 billion, or $1.36 a share, on total revenues of $3.62 billion. Yet the results revealed a sharp divergence in performance. The infrastructure arm posted gross returns of 7.8 percent, while the private credit and insurance division saw distributable earnings fall 26 percent to $373 million as its main funds delivered zero net returns.
The earnings report puts a spotlight on the challenge facing asset managers as they navigate a complex macro environment. For Blackstone, the question is whether the explosive growth of AI-related investments can offset rising stress in a private credit market that has been a primary engine of fee growth for the past decade.
The weakness in Blackstone’s credit arm was a focal point for investors. The firm’s flagship non-traded Blackstone Private Credit Fund (BCRED) delivered zero net returns, and its bank loan portfolio lost 1.4 percent after fees. Investors pulled 7 percent of BCRED’s $47 billion in net assets in March, reflecting broader anxiety about the asset class.
While Gray noted that the fund has returned 9.4 percent annually since its inception and that redemptions were driven by a small number of large investors, the results come amid wider market concerns. The firm has recorded markdowns on private credit exposures to companies including Affordable Care and Medallia, highlighting specific pockets of risk. The performance contrasts with the previous year, when rising rates made floating-rate private loans a popular strategy.
In sharp contrast, Blackstone’s bet on digital infrastructure is paying off. The infrastructure division’s 7.8 percent quarterly return was a standout, contributing to a nearly 25 percent return over the last 12 months. Gray said the firm is the largest investor in AI data centers, a sector requiring more capital than public markets alone can provide.
Recent deals underscore this focus. Blackstone is providing equity financing for a $16 billion Oracle data center campus in Michigan and its portfolio company AirTrunk is preparing a large bond issue to fund AI-focused data center construction. These moves position Blackstone as a key financier of the infrastructure needed to power the AI boom, a capital-intensive strategy that offers a different risk-and-return profile from its credit business.
This article is for informational purposes only and does not constitute investment advice.
