The S&P 500 index has been crushing private-equity returns in the past year, and Blackstone ’s second-quarter results illustrate that trend.
As part of its earnings release early Thursday Blackstone said its corporate private-equity returns in the year ending in June were 11.3%. That compares with a 24.5% total return for the S&P 500.
In the prior year ending in June 2023, the S&P 500 topped Blackstone with a 19.4% return against 9.7% for the firm’s corporate private-equity business, which has $145 billion of assets and remains one of its most important areas along with real estate.
Blackstone is the leading alternatives firm with over $1 trillion in assets under management and has the largest market value of any public investment firm at more than $160 billion.
Driven by Nvidia , Microsoft , Apple , Amazon and other big technology stocks, the S&P 500 has handily topped most asset classes in the past several years.
Another sign of more difficult times for private equity came earlier this week from Calpers, the $503 billion California pension fund, when it reported it s preliminary returns for its fiscal year ending in June . Calpers is one of the first major endowments or pension funds to report results for the June fiscal year. undefined The pension fund, a major player in private equity, said its private-equity investments gained 10.9% net of fees—although that figure is lagged one quarter. Calpers’ public-equity investments were up 17.5% in the year ended June—its strongest asset class. Private equity remains a favorite of many pension funds and leading university endowments like those of Harvard and Yale. Their view is that private equity can beat public-market returns over the long term.
But the private-equity business has gotten tougher in recent years due to keen competition for deals, higher interest rates and a less receptive IPO market, which has made exits tougher.
And private-equity portfolios of firms like Blackstone look nothing like the S&P 500, given their investments in small to midsize companies.
Blackstone, for instance, bought a majority stake in Emerson’s climate technologies business last year and more recently purchased Tropical Smoothie, a franchiser of fast-casual cafes. It also holds a stake in Bumble, the publicly traded online dating site, and it’s an investor in actress Reese Witherspoon’s media company, Hello Sunshine. Blackstone’s corporate private-equity business runs $145 billion and has 82 investments, according to the firm’s website.
Blackstone’s private-equity business has strong long-term returns including a gain of over 50% in the year ended in June 2021 when it handily topped the S&P 500 index.
But the S&P 500 index has become difficult to beat more recently and it’s dominated by some of the best companies in the world. It carries less risk than private equity, given the cash-rich balance sheets of its leading companies like Apple , Microsoft and Alphabet .
Private-equity firms, by contrast, often use considerable leverage to boost returns. Investors can get exposure to the S&P 500 through index funds that charge 0.1% or less in annual fees and with immediate liquidity.
A key risk with the S&P 500 is its vulnerability to a selloff in the leading tech firms that now make up over 40% of the index. The recent rotation into smaller companies illustrates that.
Blackstone shares gained 1.1% to $136.31 Thursday in the wake of its earnings news as investors focused on rising investment deployments and positive management comments on the firm’s outlook.
The firm’s nearly $40 billion of inflows and $34 billion of capital deployment during the second quarter marked “the highest level of investment activity in two years,” Chief Executive Officer Stephen Schwarzman said in a statement.
Citi analyst Christopher Allen wrote in a note to clients on Thursday that while Blackstone’s overall performance was mixed, the outlook appears to be improving given fund-raising and deployment trends.
Investors also were heartened by Blackstone President Jon Gray’s comments about a bottoming in commercial real estate and strong capital deployment in that area.
But ultimately, the game for Blackstone and its alternatives peers is about performance—particularly beating low-fee public investments like the S&P 500. That seems to be getting more difficult.
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Growth in size of U.S. market gives him extra leverage in trade negotiations with other countries
Donald Trump will retake office in a global economy substantially transformed from eight years ago—one much more reliant on the U.S.
It means that the president-elect’s plans, including across the board tariffs, could pack an even greater wallop on other countries than the first round of “America First” economic policy. It also gives Trump much more leverage in negotiations over trade policy.
Strong growth since the pandemic has expanded the U.S.’s weight in the global economy. Its share of output among the Group of Seven wealthy nations is higher than at any point since at least the 1980s, International Monetary Fund data shows.
Growth in China, the world’s second-largest economy, has slowed. Germany, the largest European economy, is contracting. Many poorer economies are buckling under the weight of high debt.
U.S. gains in global output partly reflect the strong dollar, which pushes up the value of American output relative to that of foreign economies. But they also result from substantial increases in U.S. productivity compared with the rest of the world.
The changes in the global economy have made America, not China, the premier destination for foreign direct investment, enlarging the exposure that foreign companies have to the U.S. economy and changes in government policy. A booming U.S. stock market has attracted huge flows of investment dollars.
“The fact that much of the rest of the world is now struggling to generate demand on its own provides more reason for countries to try to reach some sort of accommodation with Trump,” said Brad Setser , a senior fellow at the Council on Foreign Relations.
Trump started imposing tariffs in 2018, primarily on China but also on Europe and other allies. Those tariffs fractured global trade, weighing on large exporting economies in Asia and Europe, while not obviously hurting the U.S., which is less reliant on foreign demand than its trading partners. Trump campaigned on a promise to impose at least a 60% tariff on China, and an across the board tariff of 10% to 20% on everywhere else.
America’s superior economic performance has been driven in part by energy independence and massive government spending, said Neil Shearing , chief economist at Capital Economics in London. Since the U.S. now exports more energy than it imports—including millions of barrels of oil each month to China—the nation as a whole benefits when energy prices rise, unlike for net importers such as China and Europe.
The upshot: America’s traditional role as the centre of gravity in the global economy has become even more pronounced in the years after Trump’s first-term tariffs, the pandemic, and Russia’s full-scale invasion of Ukraine.
U.S. influence over Europe’s economy is a case in point. The U.S. has cemented its position as Europe’s largest export market as trans-Atlantic trade surged in recent years and China’s imports from Europe stalled. The U.S. has replaced Russia as Europe’s major source of imported energy. Europe runs big trade surpluses with the U.S. but big trade deficits with China.
The result is access to the U.S. market is far more important for Europe than access to European markets for the U.S. That asymmetry will give Trump leverage in trade negotiations with Europe, according to economists.
Germany exports around 7% of its entire manufacturing value-added to the U.S., but Germany imports only around 0.8% of value-added in U.S. manufacturing, according to a September paper by researchers at Germany’s Ifo Institute for Economic Research.
“German business is vulnerable to Trump,” said Marcel Fratzscher , president of the Berlin-based economic research institute DIW Berlin.
Parts of Asia have benefited from the changes in supply chains sparked by Trump’s initial trade war with China. Many manufacturers, including Chinese ones, moved factories to places such as Vietnam and Cambodia. For the past two quarters, Southeast Asia’s exports to the U.S. have exceeded those to China.
But that now leaves them more exposed to across the board tariffs, a policy that Trump advisers say will be necessary to force manufacturing back to the U.S.
To be sure, Trump’s policies could create countervailing forces. Tariffs would decrease imports and potentially weigh on productivity, but tax cuts would drive up household and business spending, including, inevitably, on imports. Other countries could retaliate by placing tariffs on U.S. goods.
Meanwhile, a tight U.S. labor market has pushed up wages, which is good for those workers. But it could pressure employers to raise prices, in turn making them vulnerable to foreign competition.
Many economists are girding for a different type of trade war from Trump 1.0, when trade fell between the U.S. and China but was diverted elsewhere.
“As long as protectionism refers only to one country, China, the world can live with this,” said Joerg Kraemer , chief economist at Commerzbank. “The thing becomes difficult or dangerous if you implement tariffs on all countries. This would be a new era in global trade.”