Blackstone’s net income fell during the fourth quarter, and the investing giant’s assets under management came in shy of the $1tn target it expected to reach in 2022 as fundraising weakened in some of its strategies aimed at individual investors.
The New York investment firm reported net income of $557.9m, or 75 cents a share, compared with a profit of $1.4bn, or $1.92 a share, during the same period a year earlier.
A drop in the value of Blackstone’s real estate investments contributed to the profit decline. Valuations fell by 2% and 1.5% from the previous quarter for its two main strategies.
Blackstone’s assets under management rose to $974.7bn, up from $950.9bn in the prior quarter and $880.9bn a year earlier. The firm raised $43.1bn in the quarter and $226bn for the full year.
That wasn’t enough to push Blackstone past its goal set in 2018 of reaching $1tn in assets by 2026, which it had since said it expected to reach in 2022.
Breit, Blackstone’s nontraded real-estate investment trust aimed at individual investors, posted a return of 8.4% in 2022. Yet the vehicle experienced an uptick in requests from investors to sell shares in the fourth quarter. That caused Blackstone to limit redemptions and led to a big drop in its stock. The shares have since recovered much of that ground.
READ Why Blackstone’s BREIT is a cautionary tale for private funds
Breit and Blackstone’s nontraded business-development company, Bcred, have been big drivers of its asset and fee growth in recent quarters as the portfolios of institutions such as pension funds and sovereign wealth funds become saturated with private assets.
On 3 January, Breit struck a deal with UC Investments, the entity that manages the endowment for the University of California system. Under the agreement, UC Investments said it would put $4bn into Breit and hold the shares for six years. Blackstone is contributing $1bn of its own Breit shares to the venture, effectively backstopping UC’s returns until its commitment is exhausted.
On 25 January, UC Investments said it was committing another $500m to Breit under the same terms.
“We’re north of $14bn of liquidity, and that makes us feel pretty good, not only to help meet investor requests but also for potential deployment,” Blackstone president Jonathan Gray told The Wall Street Journal.
Blackstone reported comparable cash flows were up 13% across Breit’s portfolio in 2022, and Gray said the tone of Blackstone’s conversations with financial advisers had improved in recent weeks.
The firm said the value of its corporate private equity portfolio climbed by 3.8% in the quarter. That compares with a gain of more than 7% for the S&P 500.
Blackstone’s private credit portfolio, which is nearly all floating-rate debt, appreciated by 2.4% in the quarter as interest rates rose. Blackstone’s hedge-fund investments climbed by 2.1%.
Distributable earnings, or cash that could be handed back to shareholders, came in at $1.3bn, or $1.07 a share, compared with $2.3bn, or $1.71 a share, a year earlier, as the firm sold off fewer assets.
Earlier this month, Blackstone said it finished raising a $25bn fund dedicated to secondaries, a type of transaction in which the fund buys interests in other private equity funds from existing investors.
Perpetual capital assets under management climbed by 18% to $371bn.
Blackstone in October struck a deal to buy a majority stake in the climate technologies business of Emerson Electric in a deal that valued the unit at $14bn.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com
This article was published by The Wall Street Journal, a fellow Dow Jones Group brand
Banks should be on alert for Russian oligarchs attempting to circumvent U.S. sanctions by investing in commercial real estate, a U.S. Treasury Department watchdog said.
Wealthy Russians with ties to the Kremlin are likely attempting to evade the economic sanctions placed on them in the U.S. by moving money into the commercial-real-estate sector, where complex financing methods and opaque ownership structures can help bad actors hide funds, the Treasury’s Financial Crimes Enforcement Network, better known as FinCEN, said Wednesday.
FinCEN, which serves dual roles as the U.S.’s financial intelligence unit and anti-money-laundering regulator, is the recipient of the suspicious activity reports that financial institutions are required to file if they suspect a transaction may be illicit in nature. Law-enforcement officials can consult the reports when conducting investigations into financial crimes.
The Biden administration has targeted wealthy Russians as part of its response to President
invasion of Ukraine last year, placing those with close ties to the Russian government on blacklists that are intended to prevent them from accessing the U.S. financial system.
The alert issued by FinCEN on Wednesday is the Treasury’s latest effort to prevent sanctioned Russians from finding ways to evade such financial restrictions. In an 11-page report, FinCEN listed a number of potential red flags and typologies it said banks should be on the lookout for.
“Thanks to international pressure and the economic restrictions that more than 30 countries have imposed on Russia for its brutal war against Ukraine, sanctioned Russian elites are increasingly left with fewer options for moving and hiding their ill-gotten wealth,” FinCEN Acting Director
Himamauli Das
said.
Sanctioned individuals may try to use pooled investment vehicles or offshore funds to avoid due-diligence processes, FinCEN said in its alert. Banks aren’t typically required to verify the identities of individuals who own less than 25% of a fund. Sanctioned individuals could keep lowering their stakes to avoid detection, while still maintaining control of the fund, FinCEN said.
Oligarchs also may use shell companies and multiple layers of legal entities or trusts, or transfer their assets to a family member or business associate to conceal their ownership, the Treasury bureau added.
Sanctioned individuals aren’t just investing in high-end or luxury properties, according to the alert. In some cases, they may seek out more inconspicuous investments that provide stable returns without drawing unwanted attention. Such sanction evasion strategies are just as likely to occur in small to midsize U.S. cities as they are in the largest metropolitan areas, FinCEN said.
FinCEN’s latest alert builds on a similar warning issued last year, in which the watchdog advised banks to pay close attention to transactions involving high-value assets such as artwork, luxury yachts and jewelry.
Federal prosecutors have warned that lawyers, consultants and other service providers who work for sanctioned individuals could run afoul of the law.
An indictment unsealed earlier this week charged a former high-level FBI agent and a former Russian diplomat with sanctions violations in connection with work they did for
Oleg Deripaska,
a raw-materials magnate who was placed on a sanctions blacklist in 2018.
Write to Dylan Tokar at dylan.tokar@wsj.com
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By Robb M. Stewart
OTTAWA–New-house prices in Canada are projected to be muted this year after holding steady in December following three straight months of declines.
Elevated mortgage rates in the country, and the risk of further increases in 2023, coupled with a fall in lumber prices should continue to cool prices for new houses, at least during the first half of the year, Statistics Canada said Monday.
New-home prices rose 7.7% nationally in 2022–with a fall toward the end of the year as a jump in mortgage rates following a string of central bank policy-rate increases curbed demand–cooling from growth of 10.3% in 2021, the data agency said.
Statistics Canada’s new-house price index was unchanged in December from the month before, and was up 3.9% from a year earlier. Prices declined 0.4% from July to December after rising early in the year, the agency said.
A big driver of economic growth in 2021, Canada’s housing market cooled last year as the Bank of Canada drove one of the most aggressive rate-rising campaigns among developed-world central banks in an effort to tackle inflation. The bank raised its main interest rate by 4 percentage points over the course of the year to 4.25%, the highest level in almost 15 years, but has signaled it is at or near the end of its tightening campaign. The bank is set to decide monetary policy on Wednesday, and most economists forecast a further one-quarter percentage point increase.
Last week, the Canadian Real Estate Association said sales of existing homes edged 1.3% higher in December from the previous month, but remained sharply below the level of sales recorded a year earlier, while new listings were down 5.7% for the month. The association projected the number of properties that trade hands in 2023 will slip by 0.5% after a drop of about 25% in 2022, while average prices are expected to fall 5.9% after rising 2.4% last year.
Statistics Canada said lower softwood lumber prices, which were down 57.3% in December from a high in March, and higher mortgage rates are expected to weigh on new home prices this year. However, as mortgage rates stabilize and uncertainty in markets calms, housing demand and prices should edge up in the latter half of 2023. This and other factors, including increased immigration targets for Canada and continued inter-provincial migration, could lead to price increases for new homes, it said.
The new-house price data from Statistics Canada covers single-dwelling, semi-detached and row houses. It doesn’t incorporate prices for newly built condominium units.
Write to Robb M. Stewart at robb.stewart@wsj.com
By Robb M. Stewart
Canada is paving the way to become a launching pad for commercial space flights, with plans by Ottawa to establish regulations aimed at supporting launches by private entities.
The move promises to better position Canada to tap into increase in money that has poured into the space sector in recent years, as a number of countries have increased their level of space activity to join or take on industry titans like the U.S.
The federal government said Friday that while Canada is well positioned to support space launches, the regulatory framework needs to be modernized and a number of measures are planned to support commercial launch activities.
In the interim, the government said it plans to allow commercial space launches in Canada under existing legislation and regulations, on a case-by-case basis. During this period, which is expected to last three years, Transport Canada intends to work with other federal departments and agencies to develop regulatory requirements, safety standards and licensing conditions needed for commercial space launches in the country.
The government said the transportation department also will establish an interdepartmental review process to ensure any launch is considered and approved in a way consistent with domestic legislation, international treaties, and national security and foreign policy interests.
“A long-term Canadian commercial space launch regulatory framework is key to maintaining Canada’s leading role in outer space exploration and development and represents an important evolution in Canada’s space activities,” said Annie Koutrakis, parliamentary secretary to the minister of transport. “Canadian space launch capability will create lasting economic opportunity for the Canadian space sector, encourage innovation and research, and support national security.”
Since the early 1980s, nine Canadian Space Agency astronauts have flown to space 17 times. The government said that in 2020, the Canadian aerospace industry contributed more than $16 billion and close to 207,000 jobs to the country’s economy.
In a report released Friday, McKinsey & Co. said the space sector has experienced massive growth in investment, with public and private markets globally injecting $10 billion in fresh capital into space companies in 2021, compared with $300 million a decade earlier. And while the U.S. remains in the lead for funding, with a civil space budget that represents more than 40% of the worldwide total, many countries are raising their level of space activity and about 70 have established national space agencies, the consulting firm said.
A first attempt to launch satellites from British soil reached space earlier this month, though fell short of reaching its target orbit. In November, India tested its first privately developed rocket with a suborbital launch that was a step forward in its efforts to develop a commercial space industry.
Maritime Launch Services Inc., which is developing a launch site in the eastern province of Nova Scotia that will provide satellite delivery services to clients, welcomed Canada’s support for commercial launch activities.
“With today’s announcement, the global space industry can be confident that commercial launch in Canada is not only here, but it has this government’s support,” Maritime Launch Chief Executive Stephen Matier said.
Write to Robb M. Stewart at robb.stewart@wsj.com
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All eyes are on mortgage rates as they start to retreat from 2022’s peak above 7%.
Justin Sullivan/Getty Images
Indicators of new home construction in December were mixed—but builder sentiment offers some reason for optimism in the coming months.
Construction was started on new homes at a seasonally-adjusted annual rate of about 1.38 million, 1.4% below November’s revised rate of 1.4 million, according to data released today by the Census Bureau and the U.S. Department of Housing and Urban Development.
FactSet
consensus estimates had expected a steeper drop, to roughly 1.36 million.
Single-family starts increased from the month prior, rising 11.3% to a rate of 909,000. The percentage increase in single-family starts was the largest since November 2021, according to historic data.
Permits, a forward-looking indicator of future construction, fell 1.6% month-over-month to a seasonally-adjusted annual rate of 1.33 million. Single-family permits fell for the 10th month in a row, dropping 6.5% from November to a rate of 730,000.
December’s data capped off a year of rapid change in the housing market as higher mortgage rates and home affordability hurdles weighed on buyers. About 1.55 million homes were started in 2022, representing a roughly 3% decrease from 2021. Roughly 1.65 million homes were authorized, representing a decline of 5% from 2021. For both metrics, it was the first year-over-year decline since 2009, according to historic data.
The construction data for December is comes a day after the National Association of Home Builders released its January builder sentiment survey. The latest survey showed that builder confidence improved for the first time since December 2021 as mortgage rates fell.
“It appears the low point for builder sentiment in this cycle was registered in December, even as many builders continue to use a variety of incentives, including price reductions, to bolster sales,” Jerry Konter, the association’s chairman, said in a Wednesday statement. “The rise in builder sentiment also means that cycle lows for permits and starts are likely near, and a rebound for home building could be underway later in 2023.”
Moving forward, all eyes are on mortgage rates, which have remained below 2022’s peak above 7% so far in 2023. The latest
Freddie Mac
data on mortgage rates is set for release on Thursday. Last week’s reading showed that the average rate was 6.33%, representing a decrease of 0.15 percentage points from the week prior.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
By Anthony O. Goriainoff
Gateley (Holdings) PLC said Wednesday that pretax profit rose for the first half of fiscal 2023 as revenue from its consultancy services grew, but flagged a more challenging second half.
The legal and professional services group said for the six months ended Oct. 31 pretax profit was 8 million pounds ($9.8 million) compared with a pretax profit of GBP7.3 million for the first half of fiscal 2022.
Revenue rose to GBP76.1 million from GBP62.3 million in the year-prior period. The company said revenue from consultancy services grew substantially to GBP18.2 million from GBP8.9 million the year before.
The board proposed an interim dividend of 3.3 pence a share, up from 3.0 pence a share in the year-prior.
The company said that although it has started seeing transactional activity levels being slightly reduced from the unprecedented highs of fiscal 2022 and the first half of fiscal 2023, “we are also seeing revenues beginning to pivot towards some of our more counter-cyclical lines.”
“Growing, diversified and resilient business model, combined with a strong first half fiscal 2023 performance, leaves the group well-placed to navigate the more challenging economic environment that is beginning to emerge in the second half of the financial year,” the company said.
Shares at 0805 GMT were up 3 pence, or 1.6%, at 192 pence.
Write to Anthony O. Goriainoff at anthony.orunagoriainoff@dowjones.com
By Emon Reiser
Commercial Metals Co. is encountering starkly different markets across the globe for its steel products. The Irving, Texas-based metal manufacturer reports economic tailwinds in North America, while headwinds flare up in Europe. The company discussed macroeconomic factors that could drive demand for steel on its most recent earnings call.
On metals:
“While we anticipate margins over scrap in both North America and Europe to remain elevated in relation to historical levels, they are likely to compress from the first quarter levels.
“As it relates to the infrastructure bill … there has just been a massive increase year over year in infrastructure, preplanning, and then moving into the design phase. And once it’s into the design phase, then of course it moves into active projects and bidding and then orders for steel.
“Beyond the near term, we believe there are structural trends underway that will support strong domestic construction activity. The first, which I’ve already mentioned, is the federal infrastructure package signed into law a year ago. At full run rate, this plan is expected to increase federal funding for core rebar consuming projects such as highways, bridges and related structures by 65% compared to the FAST Act that it replaced.
“We estimate the impact will be a 1.5 million tons of incremental annual rebar demand within a domestic market of roughly 9 million tons, representing an approximately 17% increase in consumption. Spending is expected to ramp up over five years and assuming typical timeframes for project approvals, bidding and awarding, we should begin to see some impact on construction activity in calendar year 2023.
“Another meaningful structural trend is the reshoring of critical industries. We have previously mentioned the massive scale and pace of construction of new semiconductor facilities. Currently, there are at least 11 facilities planned to be constructed with related total investment of over $275 billion. CMC is already shipping to several of these projects, but most are yet to break ground and impact rebar consumption.
“In the case of the war [between Russia and Ukraine], as time has gone on, we’ve seen the supply chain begin to adjust and in particular alloy costs have continued – have started to abate and prices have adjusted downward as we’ve found other sourcing options and as the uncertainty has started to become clearer.
“As a result of the ongoing energy crisis, industrial activity in Central Europe has been in contraction since the summer of 2022. This has impacted demand for merchant bar and some wire rod products. On the other hand, energy prices have moderated somewhat from recent market peaks and the current mild temperatures should also provide some relief.
“Shipments of rebar, merchant bar and wire rod in the first quarter were all well above the long term quarterly average, despite a lackluster demand backdrop [in Europe].”
For 46% of the survey respondents, real estate was the top investment opportunity.
Steele Rutherford, Unsplash
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Real estate, currency trades, and market timing were among the major ways in which the wealthiest of the wealthy grew their net worth last year, 12 months marred by challenging economic conditions, according to a report Tuesday from Knight Frank.
Using data from its annual Attitudes Survey of more than 500 private bankers, wealth advisors, and family offices conducted in November, combined with intel from industry experts, the real estate consultancy found that four in 10 ultra-high-net-worth individuals grew their wealth during 2022, “despite a year of permacrisis.”
Permacrisis is defined as an extended period of instability and security.
For a sizable 46% of the survey respondents, real estate was the top investment opportunity, whether “for its attributes as an inflation hedge or due to the benefits of diversification,” Flora Harley, partner, residential research at Knight Frank, said in the report.
“Many panelists highlighted the opportunity to secure enhanced return profiles [as] a key advantage. Plus, when investing directly, real estate enables greater control and value-add opportunities,” she said. “One in 10 respondents specifically cited looking for attractive valuations and distressed opportunities.That trend isn’t limited to real estate either: Equities and the technology sector were tipped by around a third of our respondents.”
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On the flip side, the study found that the individuals who saw their wealth shrink last year attributed it to financial markets and interest rate moves, Knight Frank said.
In 2023, real estate is expected to remain a top opportunity for ultra-high-net-worth individuals to create and grow their wealth, as is the tech sector and equity markets.
“With 68% of [ultra-high-net-worth individuals] expecting to see wealth growth in 2023—we are anticipating a substantial shift in portfolio strategy—with a search for value opportunities in the real estate sector playing a much bigger role than in recent years,” Liam Bailey, global head of research at Knight Frank, said in the report.
“Downward pressure on property values, due to higher interest rates, has created a window for private capital—especially as we enter this new market phase with historic lows in terms of the stock of best-in-class property in residential and commercial markets,” he added.
By Joe Hoppe
Braveheart Investment Group PLC shares fell Tuesday after it said that portfolio company Phasefocus Holdings Ltd.’s 2022 sales were lower than forecast.
Shares at 0816 GMT were down 1.75 pence, or 18% at 7.75 pence.
The London-listed investment company–which holds 44.69% of Phasefocus–said that since its interim results in October, Phasefocus has increased its stock holding of critical components to provide customers with shorter lead times. However, due to the loss of Cytena as lead distributor, sales in 2022 missed forecasts.
Phasefocus is now marketing and selling in the E.U. and U.S. directly and has already developed a promising pipeline of sales, Braveheart said. The company said it remains optimistic about Phasefocus’s future prospects and intends to participate in a proposed further funding round of 300,000 pounds ($365,550).
Braveheart also said that wholly-owned portfolio company Paraytec Ltd.’s clinical study to develop rapid tests continues to recruit participants, running alongside the Sheffield Teaching Hospitals National Health Service Foundation Trust existing drive-through coronavirus test service. However, the program has recently experienced further delays due to a shortage of available NHS staff to collect additional swab specimens for analysis, and initial test results are now expected in February.
“The commercial justification for the second phase, a longitudinal study, will then be determined after consideration of the prevailing coronavirus test market,” Braveheart said.
Write to Joe Hoppe at joseph.hoppe@wsj.com
By Will Feuer
Commercial Metals Co. posted higher profit for the fiscal first quarter as the company said it saw signs that some cost pressures peaked in the quarter.
The steelmaker reported net income of $261.8 million, or $2.20 a share, for the three months ended Nov. 30, up from $232.9 million, or $1.90 a share, in the same period a year earlier.
Stripping out costs associated with pre-commissioning activities at its Arizona 2 micro mill project, adjusted earnings came to $2.24 a share. Analysts surveyed by FactSet expected adjusted earnings of $1.90 a share.
Sales rose to $2.23 billion from $1.98 billion. Analysts surveyed by FactSet had been looking for $2.13 billion in revenue.
In North America, controllable costs per ton of finished steel were relatively flat from the prior quarter but remained higher than a year ago, mostly due to higher costs tied to energy, alloys and freight. The company signs emerged during the recently ended quarter that costs for certain consumables, like electricity and alloys, may have peaked.
The average selling price for steel products rose in North America from the prior quarter, while the cost of scrap fell, helping boost steel products margin over scrap.
Commercial Metals said downstream bid volumes, which are representative of the construction project pipeline, improved from a year ago, while demand from industrial end markets held stable from both a year ago and the prior quarter.
Write to Will Feuer at Will.Feuer@wsj.com