Built for All Weather

By Joan Solotar July 29, 2022

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.

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.

Joan Solotar

Global Head of Private Wealth Solutions

Past performance is not indicative of future results. There can be no assurance that any Blackstone fund or investment will achieve its objectives or avoid substantial losses

1. Morningstar as of June 30, 2022.
2. Rent based on Personal Consumption Expenditures: Services: Housing: Imputed rental of owner-occupied nonfarm housing, U.S. Bureau of Economic Analysis. CPI based on Consumer Price Index for All Urban Consumers: All Items in U.S. City Average, U.S. Bureau of Labor Statistics. Rent growth may not be correlated to or continue to keep pace with inflation.
3. U.S. Census Bureau as of July 2021, released in May 2022. Key growth markets in the South and West reflect BREIT’s top 10 multifamily markets as of June 30, 2022, measured as the asset value of multifamily real estate properties and unconsolidated investments for each market divided by the total asset value of all (i) multifamily real estate properties, excluding the value of any third-party interests in such real estate properties, and (ii) unconsolidated investments. Population and job growth reflect JBREC data as of May 31, 2022 and represent average year-over-year population and employment growth, respectively, for the trailing three-month period. Rent growth reflects RealPage data as of June 30, 2022. Comparison to national average represented by top 10 multifamily markets as of June 30, 2022.
4. Morningstar as of June 30, 2022. Based on YTD performance (1/1/2022-6/30/2022) of the Bloomberg U.S. Aggregate Bond Index and Bloomberg U.S. Corporate High Yield Index. See the “Index Definitions” and “Important Disclosure Information – Trends” at the end of this letter. 

Index Definitions

Bloomberg U.S. Aggregate Bond Index: The Bloomberg U.S. Aggregate Bond Index is an index of U.S. dollar-denominated, investment-grade U.S. corporate, government, and mortgage-backed securities.

Bloomberg U.S. Corporate High Yield Bond Index: The Bloomberg U.S. Corporate High Yield Bond Index measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market.

MSCI U.S. REIT Index: The MSCI U.S. REIT Index is a free float-adjusted market capitalization index that is comprised of equity REITs. The index is based on MSCI USA Investable Market Index (IMI) its parent index which captures large, mid and small caps securities. It represents about 99% of the U.S. REIT universe. The index is calculated with dividends reinvested on a daily basis.

Important Disclosure Information

All information is as of June 30, 2022 (the “Reporting Date”), unless otherwise indicated and may change materially in the future. Capitalized terms used herein but not otherwise defined have the meanings set forth in the Offering Documents. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon the merits of the investments described herein and any representation to the contrary is an offense.

This webpage (together with any related materials or links, the “Materials”) does not constitute an offer to sell, or a solicitation of an offer to buy, any security or instrument, or a solicitation of interest in any Blackstone vehicle, account or strategy. If any such offer is made, it will only be by means of an offering memorandum or prospectus, which would contain material information including certain risks of investing including, but not limited to, loss of all or a significant portion of the investment due to leveraging, short-selling, or other speculative practices, lack of liquidity and volatility of returns. The foregoing information has not been provided in a fiduciary capacity under ERISA, and it is not intended to be, and should not be considered as, research or impartial investment advice.

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Highly Competitive Market for Investment Opportunities. The activity of identifying, completing and realizing attractive investments is highly competitive, and involves a high degree of uncertainty. There can be no assurance that a Fund will be able to locate, consummate and exit investments that satisfy its objectives or realize upon their values or that a Fund will be able to fully invest its committed capital. There is no guarantee that investment opportunities will be allocated to a Fund and/or that the activities of Blackstone’s other funds will not adversely affect the interests of such Fund. 

No Assurance of Investment Return. Prospective investors should be aware that an investment in a Fund is speculative and involves a high degree of risk. There can be no assurance that a Fund will achieve comparable results, implement its investment strategy, achieve its objectives or avoid substantial losses or that any expected returns will be met (or that the returns will be commensurate with the risks of investing in the type of transactions described herein). The portfolio companies in which a Fund may invest (directly or indirectly) are speculative investments and will be subject to significant business and financial risks). A Fund’s performance may be volatile. An investment should only be considered by sophisticated investors who can afford to lose all or a substantial amount of their investment. A Fund’s fees and expenses may offset or exceed its profits. 

Opinions. Opinions expressed reflect the current opinions of Blackstone as of the date appearing in the Materials only and are based on Blackstone’s opinions of the current market environment, which is subject to change. Certain information contained in the Materials discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.

Reliance on Key Management Personnel. The success of a Fund will depend, in large part, upon the skill and expertise of certain Blackstone professionals. In the event of the death, disability or departure of any key Blackstone professionals, the business and the performance of a Fund may be adversely affected. Some Blackstone professionals may have other responsibilities, including senior management responsibilities, throughout Blackstone and, therefore, conflicts are expected to arise in the allocation of such personnel’s time (including as a result of such personnel deriving financial benefit from these other activities, including fees and performance-based compensation).

Third-Party Information. Certain information contained in the Materials has been obtained from sources outside Blackstone, which in certain cases have not been updated through the date hereof. While such information is believed to be reliable for purposes used herein, no representations are made as to the accuracy or completeness thereof and none of Blackstone, its funds, nor any of their affiliates takes any responsibility for, and has not independently verified, any such information.

Trends. There can be no assurances that any of the trends described herein will continue or will not reverse. Past events and trends do not imply, predict or guarantee, and are not necessarily indicative of, future events or results.