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Blackstone’s Credit Division: Outlook amid Rising Rates

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What could affect the credit division?

The performance of the Blackstone Group’s (BX) credit division is affected mainly by outflows. In the first quarter, the debt markets witnessed outflows primarily because of expectations for higher interest rates. Whenever interest rates rise, current holdings witness a dip in prices, which hurts the alternative asset managers’ credit divisions.

Moving forward in 2018, the Federal Reserve is expected to announce two more rate hikes, which would further reduce the value of alternative asset managers’ holdings, affecting their performance. If inflation rises, the Federal Reserve would likely increase interest rates.

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How Blackstone’s credit division performed

The credit division at Blackstone saw realizations of $2.5 billion in the first quarter. On a last-12-month or LTM basis, realizations were $11.7 billion. In comparison, the credit divisions of other asset managers (XLF) Apollo Global Management (APO) and Carlyle Group (CG) saw realizations of $2.1 billion and $0.2 billion, respectively.

Blackstone’s credit division’s net management fees saw a rise of 35% on a YoY basis. However, the segment’s total assets under management or AUM ended the first quarter with $140 billion, which implies a rise of 50% on a YoY basis. Competitor KKR & Company’s (KKR) public markets division ended Q1 2018 with $74.1 billion in total AUM.

On an LTM basis, the credit division at Blackstone saw ten collateralized loan obligations or CLOs, which amounted to $6.8 billion.

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