Two of the largest asset managers in the world with different investment theses, but which is a better investment -- Blackstone or BlackRock?
BlackRock Inc. (NYSE: BLK) is the largest asset manager in the world by assets under management (AUM). It has an astonishing $9.6 trillion AUM, $2.1 trillion more than the next largest asset manager. But, most of these funds are in ETFs, which charge low fees.
Blackstone Inc. (NYSE: BX) is the largest alternative investment fund on the planet, with $915 billion in AUM. While this is over ten times smaller than BlackRock's, the company's funds are actively managed and engaged in the private markets, which allows it to charge higher fees.
This begs the question: Which is a better investment right now -- Blackstone Inc. or BlackRock Inc.?
BlackRock Inc bull vs bear arguments
BlackRock has three key segments - Private Markets, ETFs, and Technology Services. 49% of the company's AUM comes from institutional investors, 33% comes from ETFs, 10% comes from retail, and the remaining 8% is from cash management and advisory. In Q1 2022, the company experienced a 7% growth in revenue year-over-year (YoY) driven by strong organic growth and 11% growth in technology services revenue. Diluted EPS increased by 20% due to a lower effective tax rate, higher operating income, and lower diluted share count.
In 2021, the company returned $3.7 billion to shareholders via dividends and share repurchases. The company has a strong history of returning value to shareholders. Since its IPO in 1999, it has returned 6,600% through dividends and capital gains to its investors.
The company's net inflows in Q1 2022 increased by $86 billion compared to the quarter ending in December 2021. Inflows represent the increase in assets under management. ETFs were the growth driver, representing $56 billion of the total inflows. However, total AUM fell from $10.01 trillion in December 2021 to $9.569 trillion in March due to market changes and foreign exchange impacts, reducing the value of the assets significantly. This reduced performance fees in the past quarter and may continue, especially if the market persists in falling or flatlines.
Blackstone Inc. bull vs bear arguments
Blackstone specializes in real estate, private equity, credit, hedge fund solutions, public debt and equity, and multi-asset class strategies. This makes the company's investment strategy considerably different from that of BlackRock. Quarterly net income fell from $1.748 billion in Q1 2021 to $1.217 billion in Q1 2022 due to a decline in investment income and principal investments. However, while quarterly revenue is down year-over-year, annual revenue is up.
Net income for the last twelve months to Q1 2022 was $5.326 billion compared to $3.86 billion the previous year, indicating the significant growth of funds diverted to alternative investments. Blackstone's $7.2 billion returns to shareholders in the form of dividends and share repurchases over the past year were almost double that of BlackRock's. This would explain the positive return on Blackstone's shares over one year compared to the loss on Blackrock's shares.
The company's AUM increased by $49.9 billion via inflows in the first quarter of 2022, increasing management and advisory fees YoY. The company's management forecasts total AUM to reach $1 trillion by year-end, further growing fee revenue. The public markets have proven to be tumultuous, and more volatility is forecast as the Fed begins its quantitative tightening program. Blackstone has benefitted from this as more investors are shifting their funds to alternative investment managers who have been outperforming the market.
The company has numerous products that may withstand rising interest rates and inflation, such as infrastructure, real estate, and floating rate debt. As interest rates rise, so too will the rates charged by the company to borrowers, thereby increasing returns for investors. However, the era of high returns by private equity (PE) funds may be near the end as, traditionally, interest rate rises result in a slowing down of PE deals and returns. This type of fund usually relies on debt to finance the acquisition of a company. It thrives during low-interest rate periods, but generally, performance decreases as rates start to rise.
So which stock is a better buy right now?
Both firms have benefitted from tremendous inflows over the past year and remain the leaders in their respective fields. However, Blackstone appears to be the better buy as it has more room for growth with investors fleeing the turmoil of the public markets. It also can charge higher fees than BlackRock, enabling stronger revenue growth through a difficult period for asset managers.
