Blackstone says era of bumper private-credit returns has ended

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Blackstone has said the era of excess returns in private credit has ended, with a golden age of mid-teens returns on private lending having given way to more muted investment results.

The world’s largest private capital group, which manages more than $500bn in credit and insurance-based assets, said that returns earned by its credit business were declining as central banks cut interest rates.

“Base rates and spreads have come down, so the absolute returns reflect that,” Blackstone president Jonathan Gray told the Financial Times.

“Some of that excess return, when you were getting mid-teens returns as a lender in senior credit two-and-a-half years ago, has gone away. So, yes, there has been some loss of absolute return,” he added.

Private capital groups’ returns on predominantly floating-rate loan portfolios surged between 2022 and late 2024 after the swiftest rate rising cycle in a generation led to soaring borrowing costs.

Investors responded by pouring more than $100bn of new money into Blackstone’s credit funds during those years in search of yields that often exceeded 15 per cent.

Gray said that while returns had fallen, Blackstone’s loans continued to yield substantially more than alternatives in liquid debt markets. “This just reflects the world, which is that returns in fixed income are lower, but returns in private credit are higher than they are in public credit,” he said.

Blackstone’s private credit investments earned 2.6 per cent in the third quarter, while its liquid credit investments earned 1.6 per cent, implying annualised yields of 10.4 per cent and 6.4 per cent, respectively.

Falling financing costs have also helped fuel the return of takeover activity as private equity buyers assemble financing for buyouts, helping to lift Blackstone’s quarterly results.

Two years ago, Blackstone “could barely borrow any money” when acquiring a $14bn division from industrial conglomerate Emerson, but a recent abundance of bank financing has helped dealmakers pursue ambitious transactions, said Gray.

On Tuesday, Blackstone and TPG struck a $18.3bn buyout of healthcare diagnostics company Hologic, a deal Gray said would have been impossible to pull off in previous years due to a scarcity of financing.

Gray’s comments came as Blackstone reported better than expected third-quarter earnings. The group sold $30bn of investments during the quarter, generating lucrative performance fees, and its distributable earnings — a metric favoured by analysts as a proxy for its cash flows — jumped 50 per cent from this time last year.

Its fundraising also accelerated amid widespread demand for Blackstone deals from large institutions, individual investors and insurance companies that have hired the company to originate higher-yielding private loans for their clients. Blackstone attracted $54bn in new investment capital during the third quarter.

Gray rejected the idea that the recent bankruptcies of two large subprime lenders and of auto parts roll-up First Brands were portents of a credit crunch that could batter the portfolios of large private capital groups.

“This feels pretty certainly much more idiosyncratic to me and coming from the banking system,” Gray said of the corporate failures. “But the idea that this reflects a broader credit issue in the system, or particularly in private credit, that doesn’t make any sense to us.”

He added that Blackstone was seeing signs of stress among poorer consumers, evidence of a so-called K-shaped economy where wealth is growing at high income levels while economic strains are rising at the bottom.

“Aggregately, the economy is resilient. Where we see weakness is in Europe generally and then lower-income consumers in the US,” he said.