Blackstone Vs Brookfield - Let's Stir The Pot (An Allow Me To Bash Brookfield)

[Gregmal]

10 minutes ago, Xerxes said:

come on Greg !!

a bit of humour on Friday. Iwasn’t suggesting BX is having run on the Bank.
 

Even the Ark has inflows (supposedly) 

LOL I wasn’t even remotely mentioning you. Look at the talking heads and Twitterers. This sort of thing is standard course for a non traded reit. It’s not even yawn worthy. And there’s people pointing to this as evidence that things are gonna implode or get real messy. It’s really amusing watching people out themselves. 

[Spekulatius]

I don’t think it’s the end of the world either, but it does beg the question how much hot money has been flowing into these Alt real estate assets that thinks  they own an asset invested in real estate with little downside but considerable upside with almost money market like liquidity due to the redemption option. The risk that these hot money flows disappear or even worse reverse in short order is the real risk here.

 

This could mean lower AUM flows and/or more redemption requests, BX is not to blame here and I think it would affect all Alt investment /private equity asset managers.

[Gregmal]

The managers themselves I have no opinion on. I remember buying BX at like 28-30 not “that” long ago. It wasn’t popular and everyone bitched and moaned that it hadn’t done shit for a decade since the ipo and that insiders didn’t own the same shares as everyone else. I sold most of it right before covid in low $60s. I don’t think over the 5 or whatever year period that the world has changed that much, but $85 doesn’t scream anything noteworthy to me as far as cheap or expensive. They’re cyclical and rates are important to the game they play, so it’s just not high conviction(or any conviction) in any direction for me. 
 

If I had to pick one, it would be BAM cuz I know that regardless of what happens they’ll cook their books to make it look better lol. Just kidding of course. 

[StevieV]

I think the BX BREIT developments are more than nothing and far from catastrophe.

 

At Q1: "We have continued to raise a total of $4 billion to $5 billion per month of equity capital for our three retail perpetual vehicles: BREIT, BCRED and BEPIF, including the most recent monthly subscription on April 1." and "BREIT more than doubled in size year-over-year to $63 billion, generating 5.8% appreciation in the first quarter. We have the most powerful brand in the retail channel and an enormous first-mover advantage, selling our products today through a broad network of distribution partners. We are in the early innings of our build-out in this vast and underpenetrated market."  https://seekingalpha.com/article/4502730-blackstone-inc-bx-ceo-steve-schwarzman-on-q1-2022-results-earnings-call-transcript

 

BREIT was gathering billions a month AND promoted as a growth engine.  In turn, the growth drove the multiple.  So a slowdown in growth and a multiple compression.

 

BREIT flow issues didn't start this week though and there has been concern for a while.  The stock price has reflected at least some of that, down from a 52-week high of $141 to $85 now.

 

One thing about BX's model that I think can go overlooked is the combination of paying out a high percentage of earnings while growing.  BX's dividend is highly variable, but let's say 5% normalized here.  They've been growing very fast and 5% dividend + 20% growth is certainly attractive, but even if the growth slows down 5% dividend + 10% growth can be very attractive too.  Depends how you see the growth, brand, certainty, etc.

 

I was concerned that BX's growth would slow down back when they had just a few hundred billion AUM.  So, shows what I know.  Of course, when buying, I don't like to pay a price that assumes 20% growth continues.  Maybe 7-10%, which should be hit or exceeded minus serious problems.  I'm not sure whether BX is cheap or not here, but the stock certainly isn't pricing in 20%/year AUM growth.

[dealraker]

Look...I'm just trying to come up with a more selective accounting model to value BAM.  Plan value is just around the corner if I succeed.  

 

I think I'll name it AAFFO or Aspirational Adjusted Funds From Operations.  

[StevieV]

1 hour ago, StevieV said:

BREIT was gathering billions a month AND promoted as a growth engine.  In turn, the growth drove the multiple.  So a slowdown in growth and a multiple compression.

 

Plus, the market seems to be relying heavily on the steadiness of earnings growth for valuation.  I think ARES is probably the most richly valued alt.  I'm guessing that's because of the high percentage of FRE earnings (so less volatile) and the very steady 15-20% growth in FRE.  I'm not sure ARES is the safest, but the FRE and FRE growth record and projections are the most straightforward.

 

On the other hand, CG has the least FRE percentage and probably the least certain FRE growth outlook (among other issues).  So, worst multiple.

 

I think APO's stock price is strengthening on the strengthening belief they have a strong, sustainable and becoming more certain FRE and APO specific metric SRE growth runway.

 

Basically, BREIT weakness hits what the market has cared most about - steady and long runway FRE growth.

[Spekulatius]

The weakness of BN (or BAM) versus most peers has been quite surprising. BN has underperformed against all peers except CG by a huge margin. BN has issues with real estate , but so has BX.

 

I think one factor has been that Brookfield is Canadian, but the other factors are complexity and probably more forward looking management in case of BX, APO. There has been a lot of dispersion in the group since the September low in 2022

Edited October 8, 2023 by Spekulatius

[John Hjorth]

I have to say, that I really appreciate, that you pick up this topic again for a further spin, @Spekulatius ,

 

During the last two weekends I've been looking at Blackstone [BX] too, compared to Brookfield [BN].

 

Here, I also have to say, that what you give is what you get, related to investors for a listed company like BX or BN, is likely [to me] what we see here.

 

And I personally think the dispersion in this actual case as documented by you above is exactly about that. BN is in the stone age reporting wise related to own investments in funds set up for covering clients needs, - compared to BX.

 

And shame on BN for that.

[John Hjorth]

Bloomberg - Markets - Fixed Income [October 11^th 2023] : KKR and Carlyle Take No Carry on New Private Credit Funds.

 

It appears to me like everyone is running in the same direction with the tongues hanging out of the mouth. The real question is if the dicks are hanging out of the zippers also, and what body parts are making the decisions - the brains or the dicks?

 

Private credit funds based on open ended funds structures? Please give me a break.  This is going to go bad - very bad.

 

Private credit commoditization in this industry at its finest?

 

- - - o 0 o - - -

 

Bloomberg - Markets [October 11^th 2023] : Oaktree’s Howard Marks Urges Significant Allocation to Credit Market.

 

Oaktree Capital - Howard Marks memo [October 11^th 2023] : Further Thoughts on Sea Change.

 

Prelude :

 

Quote

In May, I wrote a follow-up memo to Sea Change (December 2022) that was shared exclusively with Oaktree clients.  In Further Thoughts on Sea Change, I argued that the trends I had highlighted in the original memo collectively represented a sweeping alteration of the investment environment that called for significant capital reallocation.  This memo was originally sent to Oaktree clients on May 30, 2023.¹

 

Last line :

 

Quote

... Unless there are serious holes in my logic, I believe significant reallocation of capital toward credit is warranted.

 

[Spekulatius]

@John Hjorth Open ended credit funds without carry are essentials. CEF‘s. They won’t end badly for BX or KKR, but they will end up badly for their clients (meaning they will trade a discount to NAV), if they trade at all in some secondary markets.

[Xerxes]

Looks like both BX and BAM/BN  underperformed compared to Ares, Apollo and KKR. 
 

Neither Blackstone and Brookfield complex were able to breached their previous all time highs. 
 

 

[John Hjorth]

@Xerxes,

 

Thank you,

 

All I can say it is that the disclosed 2023 earnings numbers for BN at group level was nothing to write home about. Less than USD 1 B to BN shareholders after taxes, minorities shares of results and preferred dividends on a BN group  equity beginning of 2023 of approx. USD 30 B, indicating a progress of less than 3 percent.

 

- - - o 0 o - - -

 

Related to @Spekulatiuss last post above :

 

On 10/12/2023 at 1:04 PM, Spekulatius said:

@John Hjorth Open ended credit funds without carry are essentials. CEF‘s. They won’t end badly for BX or KKR, but they will end up badly for their clients (meaning they will trade a discount to NAV), if they trade at all in some secondary markets.

 

@Spekulatius,

 

I'm sorry for no reply from me to this post of yours now months ago, that somehow may skipped my attention. Here is at least my very late answer : Yes, your are right [, and that actually also what was my intent to express : LPs - BNs socalled partners will end as the patsies, if this seismisc movement into private credit evolves badly.

 

But if the seismic movement to private credit ends up as a flop, BN shareholders won't get fat either [ perhaps Flat[t] ].

Edited March 14 by John Hjorth

[John Hjorth]

21 minutes ago, John Hjorth said:

... All I can say it is that the disclosed 2023 earnings numbers for BN at group level was nothing to write home about. Less than USD 1 B to BN shareholders after taxes, minorities shares of results and preferred dividends on a BN group  equity beginning of 2023 of approx. USD 30 B, indicating a progress of less than 3 percent. ...

 

BN 2023Q4 Supplemental Information, p. 26 : The earnings number is USD 969 M. [ Link ].

 

[Xerxes]

On 3/14/2024 at 12:36 PM, Xerxes said:

Looks like both BX and BAM/BN  underperformed compared to Ares, Apollo and KKR. 
 

Neither Blackstone and Brookfield complex were able to breached their previous all time highs. 
 

 

 

 

Asset-light return YTD:

 

BAM 20%
BX 22%

Asset-heavy return YTD

Carlyle 8% (not sure if it is asset light ?)
BN 34% 

Ares 35%

Apollo 37%

KKR 63%

[StevieV]

37 minutes ago, Xerxes said:

 

 

Asset-light return YTD:

 

BAM 20%
BX 22%

Asset-heavy return YTD

Carlyle 8% (not sure if it is asset light ?)
BN 34% 

Ares 35%

Apollo 37%

KKR 63%

 

I think most would categorize CG and ARES as asset light.  APO, KKR and BN own the insurance subsidiaries.  Carlyle owns a portion of Fortitude (insurance co), but not the whole thing.  I don't think ARES has a significant stake in an insurance company.  KKR also has this new unit where they are keeping operating businesses.  From memory, so I could be off.

 

In any event, I think the key is whether the particular company is developing a long runway and has developed a competitive advantage.  I like APO, though not to the exclusion of the others.  They have invested a lot into origination and I think that will pay off over the medium and longer term.  Investor day coming up October 1.

[Red Lion]

48 minutes ago, Xerxes said:

 

 

Asset-light return YTD:

 

BAM 20%
BX 22%

Asset-heavy return YTD

Carlyle 8% (not sure if it is asset light ?)
BN 34% 

Ares 35%

Apollo 37%

KKR 63%

I think the asset heavy alts were coming off of a more significant sell off. I definitely think ares/bx compare well (particularly with a 50/50 weighting) over a multi year period. 
 

also think owl should be in contention as far as asset light is concerned. 
 

OWL and BAM are both new to the market and BX and ARES didn’t really get hammered nearly as bad as BN/apo/kkr. 
 

 

[Xerxes]

1 hour ago, Xerxes said:

 

 

Asset-light return YTD:

 

BAM 20%
BX 22%

Asset-heavy return YTD

Carlyle 8% (not sure if it is asset light ?)
BN 34% 

Ares 35%

Apollo 37%

KKR 63%

Thank you both for the correction

i agree that YTD is a function of how badly it was depressed in 2022. 

 

Asset-light return YTD:

 

Carlyle 8% 

BAM 20%
BX 22%

Owl 29%

Ares 35%

Asset-heavy return YTD

BN 34% 

Apollo 37%

KKR 63%