Blackstone warns of looming hit to consumers from surge in bond yields

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

One of the top executives at Blackstone Group, the world’s largest alternative asset manager, has warned that the recent sharp increase in long-term US government bonds yields will soon hit consumers and slow the economy.

Jonathan Gray, president of Blackstone, said in an interview with the Financial Times that the jump in 10-year Treasury yields would force consumers to tighten their belts.

“When 30-year mortgages and car loans cost you 8 per cent it will impact consumer behaviour,” said Gray. “Growth has been remarkably resilient, but if you keep policy this tight, this long, invariably you will cause the economy to slow down.”

On Wednesday, 10-year Treasury yields rose to their highest level in 16 years, causing global stock markets to fall. Meanwhile, 30-year Treasury yields increased to more than 5 per cent.

The rise in interest rates in recent weeks, will put downward pressure on the value of financial assets more broadly, Gray added. “There is definitely an impact to all assets when you have this kind of movement in the 10-year Treasury,” he said.

His comments came as Blackstone delivered weaker than forecast third-quarter earnings that showed an unexpected slowing in its fundraising efforts, particularly those surrounding its newest flagship buyout fund.

Blackstone raised $25bn in new investor money during the three months to September, less than the figure of about $32bn analysts polled by Bloomberg had forecast and a decline from the second quarter when it raised slightly more than $30bn.

The New York based private equity group raised just $846mn for corporate buyout investments during the third quarter, a fraction of the $5.8bn it raised in the second quarter.

Gray said institutional investors had decided to delay committing to new to private equity funds into 2024, causing the slowdown.

Many large investors, pensions and sovereign wealth funds have found themselves overexposed to private assets as rising interest rates have hit public valuations and made it hard for buyout firms to sell existing investments and return cash to investors.

This overexposure has caused institutions to retrench from committing to new funds, causing large private equity groups such as Blackstone, Apollo Global and Carlyle Group to rein in their fundraising goals.

Earlier this year, Blackstone warned that its current buyout fund would be smaller than the $26bn fund it raised in 2019. However, Gray said that Blackstone remained on track to meet guidance given earlier this year of raising more than $20bn for the fund.

Other areas of Blackstone, such as its credit and insurance business, were a beneficiary of rising rates. The unit has raised $55bn during the past twelve months as investors pile into strategies they believe will benefit from rising rates.

Blackstone’s quarterly results also showed that challenged financial markets had made it hard to sell investments and realise lucrative performance fees, crimping overall earnings.

Blackstone’s distributable earnings — a metric favoured by analysts as a proxy for its cash flows — were $1.2bn, or 94 cents per share, below consensus expectations of $1.01 per share from analysts polled by Bloomberg.

Gray forecast a rebound in financial transactions when investors felt confident rates had stopped rising.

“When interest rates settle out and it is clear the Fed is done, and at some point when the 10-year Treasury settles out, it will give a little more terra firma for investors,” he said. “Ultimately, the pent-up demand to sell businesses, to finance and to deleverage — all of that has to come.”