The Hallmark of Margins, Returns and Valuation, Blackstone (BX) Rides the Asset Management Pack

Was initially interested in Ameriprise Financial (AMP), but BX’s operating margins are tempting, and it turned out to be cheap as well.

It’s the growth of the company’s forest (talking about earnings, cashflows, margins, book value and others) that counts. – Warren Buffet

Ameriprise Financial (AMP) as a whole entity contributes about 0.06% to the GDP of the country, this is quite solid in that respect. It Increased shareholders’ wealth by 20.9% last year.

Ameriprise Financial (AMP) Financial – the business; provides wealth and asset management services to clients, with insurance, annuities and estate planning.

Taking a look at a high-net-worth client, they could structure his or her annuity (all through life), plan for the movement of assets to heirs ahead of death, protection from financial loss (as per insurance), coupled with managing his or her finances and valuable resources.

The income stream of AMP is like a tube with extra holes gushing water out from multiple sources. (except the water is the income). Would there really be an end to client advisory on their wealth? I don’t think so, looks like AMP’s got an eternal MOAT to me.

The company is also adamantly keen at managing its financial and other resources.

But I’ll be digressing into Blackstone (BX) they kind of jumped into the radar of the rare invaluable. My favorite metric (operating margin) seems to tell that they are the winner of the asset management crown with 4,600 basis points relative to the industry’s 23%.

Let’s dive more into the firm.

Blackstone (BX)’s business cuts across private equity, real estate, hedge fund solutions, credit offerings and financial advisory.

BX had over $18 billion of capital in 2012, which was a 9% growth from 2011. Also acquired Capital Trust’s investment management’s business along-side Harbormaster Capital (Holdings) Limited while recording operating earnings of about $1 billion with total performance fees collected as $1.6 billion (33% rise from 2011).

In 2013, it experienced huge capital inflows for its business segments, and its acquisition-based activities; rolling in close to $70 billion. Blackstone (BX) also acquired a private equity secondary fund of funds known as Strategic Partners Fund Solutions.

Fast forward to 2021, absurdly brought in $13.8 billion from operations, and much of that success was from the unrealized investment income of about $10.2 billion (both from principal investments and performance allocation). It usually incurs losses on the unrealized portion of these segments, was just lucky that year.

Blackstone (BX) is a top alternative asset manager – these classes involve real estate, commodities, Art & Collectibles, Infrastructure, Foreign Currencies, Hedge fund, Private equity, venture capital, Private credit you name it.

So, whenever you are looking for a home, or buying a product from a renowned business, there are higher chances that Blackstone (BX) owns either some or a huge portion of the shares or might have lent out money to finance that businesses operation.

Its historical interest coverage is tenaciously high at 24.3x clearing off any doubts in the minds of debt pleasing investors.

Moving on to 2024, Blackstone (BX) employed about $16.5 billion worth of net tangible asset, reduced its cash balance by 27%, coupled with a 5,400-basis point of debt, still earned 33% after tax on the capital.

It later closed the year 2024 with a cash total of $2.2 billion, and $41.2 billion in total assets.

Currently, its fair value pinpoints at $476.5 per share (FCF and NPV blended), so there won’t be need to fret about purchasing a company at a pricey figure.

2024 was a very great year for Blackstone (BX); base management fees went up by 5%, transaction, advisory and other fees added $164 million to its income statement, generating about $5.3 billion as fee related earnings.

Total operating expenses (including fee related compensation and other business-related costs) surged by 26% but still managed to maintain a close to 1.2x increase in segment distributable earnings.

About 30% of total expenses was driven towards improving the businesses competitiveness, and we should expect the positive effect in the coming years.

Just a summary of the balance sheet and earnings of the asset management and holding company for 2024;

Total cash held at $2.18 billion, receivables at $985 million, loans payable of $11.3 billion plus operating lease at $966 million. ?

Headline operating expenses $6.82 billion, with net earnings of $5.44 billion.

One thing to note about Blackstone (BX), it pays more out as dividends than it earns, quite unorthodox but still seems reasonably fair Afterall, it stands on mansions of capital, with businesses breeding heavy cash amounts.

I guess investors would get the incentive to lay more stakes elsewhere from the inflows they get from the company.?

Blackstone (BX) continues to expand its asset under management while adding up complementary businesses to its portfolio. Under its hedge fund solutions, it runs a fund of funds meaning; other expert firms at money management also keep accounts with the multinational.

It’s in a deathless business as wealth and asset accumulation is a top line human desire. And according to CSI market, it kept up a market share of about 1.27% in Q3 2024.

The firm really tries to innovate and build up market-competent businesses contributing substantially to its growth and mass capital.

It’s got several locations from The Americas – 10 cities, EMEA – 9 cities, and Apac – 8 cities.

Though book value increase is crucial, market value growth (MVG) is of more importance; giving us insights as to investors’ future confidence in the company has regards its financial metrics. Compoundingly, that buzz word (MVG) strikes at 29% every year. ?

These other competitors in the asset management industry (not necessary to mention names) are also great contributing greatly to the economy and chasing the future, but I had to unhesitantly digress to Blackstone (BX), its operating margin is quiet tempting.

Please note, on the chart, interest to EBIT reduced from 13% in 2023 to 6% in 2024 meaning, from paying 13% of operating earnings to debt holders, it now pays only 6% because its earnings went up substantially.

Debt ratio also declined by 3% as borrowed funds went down by 5%.

Stephen A. Schwarzman is chairman and CEO of BX and he recently commented on the firm’s latest results. Earnings growing sharply, while inflows, investments and realizations supportively make more runs for greater returns.

I love the fact that BX’s core center is on two things, the future and the customers. Its priceless as to what future intrinsic value could be recouped from chasing such a passion.

Just a recall – fair value is around $476.5 per share (a blend of NPV and FCF valuation methods).

Please note (also a disclaimer); the treasury rate changes every time, causing valuation to fluctuate, but we still end up having an accurate rather than precise result. Your due diligence is appreciated, and you should expect more till the year 2070.