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Can the US-China Trade Battle Impact Blackstone’s Q2 2018?

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Drivers for sequential growth

On July 19, The Blackstone Group (BX) is expected to report its second-quarter earnings. Wall Street analysts expect the asset manager to report EPS of $0.74, which reflects a YoY (year-over-year) rise of 25.4%.

In the first quarter, it reported EPS of $0.65. The sequential rise is expected primarily due to increased investor interest in alternative assets as trade conflicts continue to impact the performances of the broader markets. In the second quarter, the company could thus see a rise in inflows.

Despite volatile markets, Blackstone had total inflows of $18.2 billion in the first quarter. It ended the first quarter with managed assets of $449.6 billion, implying a YoY growth of 22% thanks to the appreciation in its investments and fundraising.

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Expected impact on Blackstone’s realizations

In the first quarter, Blackstone generated performance revenues of $910.5 million, which implies a fall of 12% YoY. Its realizations could be impacted by the US-China trade wars since global uncertainties impact the valuations of portfolio companies.

In the second quarter, Blackstone is expected to generate revenues of $1.71 billion, which implies a YoY growth of 13.3%. Of the total AUM (assets under management) in the first quarter, the company had $111.4 billion in private equity, $140 billion in credit, $119.6 billion in real estate, and $78.7 billion in hedge fund solutions.

In the second quarter, Blackstone’s corporate private equity segment could see the impact of carrying value, primarily due to rising concerns of US-China trade tensions. During the same period, the company’s real estate business could see positive impacts since real estate has seen interest from investors due to weaker return expectations from equities.

In the second half of 2018, Blackstone’s credit business could get a boost in inflows since the pace of interest rate hikes is expected to slow down due to trade wars.

In the second quarter, its competitors (XLF) The Carlyle Group (CG), KKR & Co. (KKR), and Apollo Global Management (APO) are expected to post revenues of $722.9 million, $962.4 million, and $637.8 million, respectively.

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