Blackstone (BX 1.15%) recently reached a remarkable milestone. The company has surpassed $1 trillion of assets under management (AUM), the first alternative asset manager to reach that level.
While that's an impressive accomplishment, alternatives are only a small slice of the global stock and bond markets. Because of that, Blackstone believes it has a huge growth runway. That will give the company more fuel to pay dividends.
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Key Data Points
A leader in a relatively small niche
Blackstone was one of the early leaders in establishing the alternative investment sector when CEO Steve Schwarzman co-founded the company in 1985. Today, the alternatives industry has about $12 trillion in AUM across private equity, hedge funds, real estate, infrastructure, and insurance and credit solutions. While that's a lot of money, it's a small slice of the roughly $225 trillion global stock and bond markets.
A big driver of the rise in alternatives is the sector's ability to generate better risk-adjusted returns than the public stock and bond markets. Blackstone has been a key contributor to the industry's ability to achieve differentiated returns. COO Jon Gray pointed out on the second-quarter conference call: "Of course, it all starts with investment performance. In our drawdown funds, we've delivered 15% net returns annually in corporate private equity and opportunistic real estate for over 30 years, 15% in secondaries, 12% in tactical opportunities, and 10% in credit."
Meanwhile, Schwarzman noted, "We've delivered for [clients] in good times and bad, generating $300 billion of aggregate gains with minimal losses. In fact, virtually all of our drawdown funds we've launched in our history have been profitable for our investors."
Multiple avenues to grow
Schwarzman sees a lot of growth still ahead for Blackstone. He stated on the company's second-quarter conference call, "With a minimal share of total investable assets today, we expect alternatives to expand substantially in the future." He's not alone in this belief. Preqin, a leader in data for the alternatives sector, expects that alternative AUM will reach $23.3 trillion by the end of 2027, up more than 70% from its level at the end of 2021.
Schwarzman believes Blackstone's brand and global reach make it "the best-positioned firm in the world to capture future opportunities for growth in the alternatives area." He noted several opportunities that should drive future growth on the call. "The most compelling of these today include private credit and insurance, infrastructure globally, energy transition, life sciences, the development of the alternatives business in Asia, and the private wealth channel, where the democratization of alternatives in its early stages."
The company is already capitalizing on many of these opportunities. For example, John Gray pointed out that the recent banking crisis is driving a structural shift in the market. With traditional financing providers growing more cautious, Blackstone has partnered with banks and other originators to fill the credit gap. Meanwhile, it's raising funds to support long-term trends like decarbonization, data infrastructure and AI, and life sciences. Finally, it has rolled out several products for high-net-worth investors, who are rapidly increasing their allocations to alternatives.
More fuel to grow the dividend
Blackstone's growing AUM has increased its fee-related income and performance revenues (its share of the profits produced by its funds) and a healthy rate. Overall, the company has grown its distributable earnings at a 20% annual rate over the last 10 years, which is more than double the rate of the S&P 500. It has returned all that money to shareholders through dividends and share repurchases.
While Blackstone doesn't pay a fixed quarterly dividend like most companies, it has steadily paid more in dividends over the long term. The company has paid a total of $3.42 per share in dividends over the past year, giving it a 3.2% dividend yield at the recent share price. That's nearly 200% above its level a decade ago. With more AUM growth ahead, Blackstone's dynamic dividend should continue its overall upward trend in the years to come.
Lots of growth ahead
Blackstone's reputation for delivering differentiated returns for investors has enabled it to grow into the world's largest alternative asset manager with $1 trillion in AUM. However, it's only scratching the surface of its potential since that's a tiny fraction of the public stock and bond markets. That gives it a huge runway to continue growing its AUM, earnings, and dividends. That growth and income potential make Blackstone look like a great stock to buy for the long haul.
