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Blackstone Group analysis: this company's main weapon may well have turned against it

Do Kwik
6. 4. 2023
5 min read

An interesting and diversified portfolio of diverse assets that has the potential to generate a huge pile of cash for the company and its investors? That's exactly what Blackstone has. But could it be a double-edged sword?

Blackstone is making some pretty interesting investments

A basic overview

Blackstone Group Inc $BX-0.8% is an American investment firm that specializes in alternative investments such as private equity, real estate, infrastructure and hedge funds. The company was founded in 1985 and is headquartered in New York City.

Blackstone has a broad portfolio of investments that include business acquisitions, real estate investments, infrastructure, bonds and other alternative investments. The company also has one of the largest real estate investment business units in the world, managing more than $325 billion in assets.

Risks

As an investment company, Blackstone faces several risks that could affect its performance and earnings. The most significant of these include:

Market: Blackstone invests in alternative assets, which means its investments may be less liquid than traditional investments. This may limit the company's ability to sell its assets when needed. In addition, asset values can be affected by market fluctuations and price declines.

Competitive risk: The alternative investment sector is rapidly developing and growing, which increases competition in the market. This may reduce investment returns and increase the cost of attracting new investors.

https://www.youtube.com/watch?v=69gFOLpXzQg

Liquidity Risk: Blackstone manages a large amount of assets, which may mean that the company may have liquidity problems if it has to sell its assets in the short term. Low liquidity may also limit the company's ability to invest in new areas.

Regulation: Investment companies such as Blackstone are subject to regulations and rules that may limit a company's ability to invest in certain areas. In addition, regulations may change and cause increased administrative costs and limit the Company's ability to make profits.

Sector

Blackstone Group is in the alternative investments sector, which includes investments in private equity, real estate, infrastructure, hedge funds and other alternative assets. This sector differs from traditional financial markets such as equities and bonds, and offers investment opportunities that are often less liquid and have higher risk but also higher potential returns.

Private equity is an investment strategy that involves buying private companies, restructuring them and then selling them at a higher price. Real estate investments involve the purchase and management of real estate such as office buildings, apartment buildings, hotels and shopping malls. Infrastructure investments focus on investments in public infrastructure such as roads, bridges, airports and others.

Hedge funds are investment funds that seek to achieve high returns while minimizing risk. These funds often use complex investment strategies, such as derivatives, and can be less transparent than other investment options.

Competition

Blackstone Group's competition includes several large and well-known companies.

The Carlyle Group $CG-1.5%: An American investment firm that specializes in private equity, real estate investments, and bonds.

KKR & Co. Inc $KKR-0.7%: An American global investment company that specializes in private equity, real estate investments and infrastructure.

Apollo Global Management, Inc. $APO-0.7%: An American investment firm that specializes in private equity, real estate investments and credit strategies.

Brookfield Asset Management Inc. $BAM-1.9%: Canadian investment company that specializes in real estate investments, infrastructure and private equity.

Current situation

In the fourth quarter, Blackstone's operations generated a profit of $1.43 billion, of which real estate investments accounted for $525 million (37%) and private equity investments accounted for $511 million (36%).

Blackstone earned a profit of $7.46 billion in 2022 from its diverse portfolio of alternative investments, with real estate accounting for the majority of the gain.

Because Blackstone receives a fee for managing specific assets, the number of assets under management is important. In 2022, Blackstone's assets under management were $974.7 million, an 11% increase year-over-year. Blackstone's distributable earnings cover dividend payments. In 2022, the alternative asset manager had earnings of $5.17 per share and paid a total of $4.40 per share, an 85% dividend payout ratio.

The dividend even grew

Blackstone's core business is cyclical and dependent on the economy. Real estate investments and private equity, in particular, are highly volatile, high-margin segments that determine Blackstone's level of distributable earnings. As a result, Blackstone's earnings and dividend fluctuations are higher than many other passive income stocks.

Blackstone provides passive income investors with a diversified business model that includes large and growing areas of real estate investment and private equity. Blackstone also has multiple sources of income that are linked to the amount of assets under management and include performance fees that can vary dramatically. While there is some risk associated with this volatility, Blackstone's dividend is easily covered by distributable earnings and the 5% dividend yield is attractive to investors seeking regular income.

The price is very high and the risk of volatility due to rates is relatively high. This is not very interesting to me personally. But someone might find this combination interesting.

Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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