Built for All Weather

Highlights Aug.31,2022 00:32

We think Blackstone is well-positioned for an all-weather mindset.

Against a backdrop of challenged global markets, rising rates and inflation, Blackstone’s investment strategies outperformed relevant benchmarks, delivering favorable outcomes for its investors in the second quarter. Anticipating higher interest rates and more pervasive inflation well before many others, the firm positioned its portfolios to reflect that environment. With nearly four decades of successful long-term value creation through many cycles, Blackstone was able to weather the challenges. Assets under management rose to a record $941 billion.

The calculus on traditional asset allocation has changed. After 40 years of declining inflation and interest rates in the United States, advisors today are faced with persistent inflation, rising interest rates, and challenged stock and bond performance. The result, as we know, was the worst start to the year for equities, bonds and the 60/40 portfolio in many decades, and for most individuals, among the worst in their investing lives.1

Many advisors are seeking an all-weather portfolio, one which can perform well in the face of rising rates and inflation and protect capital in a weakening economy. Further, faced with an alpha-driven market, where asset selection is critical, versus the beta-driven market of the last decade, manager selection becomes even more critical. No one, including Blackstone, will be immune from market volatility. However, Blackstone believes that the advantages of scale, knowledge on the ground from across its global portfolio, and strong investment discipline have positioned the firm very well for today’s environment.

"We have both the staying power and firepower to thrive in this challenging environment, as we have for 36 years."

In both real estate and private equity strategies, Blackstone continues to favor sectors with secular tailwinds, where assets are in short supply, and with growing demand, which helps to maintain pricing power. The firm’s focus remains on high-quality companies and properties with more limited exposure to input costs. In credit, Blackstone has favored floating rate debt.

Hard assets with short duration, such as real estate where leases reset frequently, are designed to be resilient even as stocks, bonds, and other traditional assets struggle to deliver returns in today’s environment. Rental housing is one example. Over the period 1978-1982, the last time the U.S. experienced high inflation, CPI averaged 9%, and apartment rental increases were similar.2 The firm is seeing even higher rental increases in its portfolio across regions in the U.S. with outsized population and employment growth.3

In private lending, short-duration, floating rate credit, particularly when it is higher in the capital structure, is designed to perform well in a rising rate environment. This is distinct from investment grade bonds and high yield bonds which to date have turned in a difficult performance.4 Blackstone is focused on lending to high-quality companies which have the potential to meet their credit obligations as interest rates move higher.

The foundation of Blackstone’s business throughout its history has been delivering investment performance for clients. We believe that the way the firm has positioned investor capital over the past several years is driving differentiated returns today. Current market dislocations are likely to present new investment opportunities in the period ahead for those with scale, proven expertise, and the ability to anticipate trends. We think Blackstone is well-positioned for an all-weather mindset.