Blackstone's portfolio has borne the brunt of the economic crisis, as countries stalled economic activity to various degrees to contain the spread of the novel coronavirus
The covid-19 crisis, which has jolted economies worldwide, is much more formidable than the global financial crisis of 2008, said Blackstone’s chief executive and co-founder Stephen Schwarzman.
The New York-based alternative asset management behemoth’s portfolio has borne the brunt of the economic crisis, as countries stalled economic activity to various degrees to contain the spread of the novel coronavirus.
Overall, Blackstone’s assets under management (AUM) fell 5.7% to $538 billion as on 31 March, from $571 billion on 31 December.
“Blackstone’s first-quarter financial results reflect the unprecedented market and global economic conditions caused by the covid-19 pandemic," Schwarzman said on an analyst call late Thursday to discuss the firm’s Q1 2020 results.
Blackstone’s private equity portfolio was the worst-performing among all asset classes, with a 21.6% decline in value, although Schwarzman said the fall was in line with the benchmark S&P 500 index.
A major reason for the impact on the private equity portfolio was the firm’s energy investments. Excluding energy, the decline in value was 11.1% for the March quarter. The so-called tactical opportunities business saw a 15.9% drop in the quarter.
The overall private equity portfolio’s AUM stood at $174.7 billion. Other asset classes, such as real estate and credit, saw markdowns in value.
“The crisis has seen some of the largest declines in value across asset classes and market volatility has reached an all-time high," Schwarzman said.
He, however, said that these markdowns reflect a “point in time value" and do not reflect the ultimate value that Blackstone expects to realize from its investments.
“We bought Hilton Worldwide in October 2007, ahead of the market crash. At its worst point, the investment was marked down to 31 cents against the dollar. When the markets recovered, we were able to generate 10 times the marked down value generating about $14 billion in profits, likely the highest profit seen in the private equity industry," he said.
“Throughout our firm’s 35-year history, we have weathered many difficult periods, including the global financial crisis, only to emerge stronger than before. Our experience has shown that although asset values may be temporarily marked down, strong assets ultimately recover," Schwarzman said.
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