The head of Blackstone, the world’s largest alternative asset manager, has warned that investors are overestimating how quickly the US Federal Reserve will cut rates.
jonathan gray, black stone Chairman, said that while the Fed would likely avoid further rate hikes due to cooler inflation, financial markets have overestimated the chances that the central bank will cut borrowing costs.
“The Fed is likely to pause or maybe move up 25 basis points from here, but I think it’s unlikely to turn as fast as the market expects,” he told the Financial Times in an interview.
He added that the Fed would “keep rates at a high level for an extended period of time” to ease any remaining inflationary pressures.
Gray, who spoke as Blackstone reported its first-quarter earnings on Thursday, is the latest Wall Street top executive to warn investors to expect higher rates to persist.
JPMorgan chief Jamie Dimon and BlackRock’s Larry Fink discussed last week that the collapse of Silicon Valley Bank and broader fights between regional US banks would not be enough to deter the Fed from keeping rates high.
Investors are still expecting a final quarter-point rate hike in May or June, but then the Fed will start cutting rates, with two cuts expected by the end of the year.
“I think inflation is definitely cooling off. It is increasingly in the rear view mirror and we see it in our portfolio companies,” Gray said. US inflation has relieved to its lowest level in almost two years, with the March consumer price index rising 5 percent on-year.
Gray warned that high rates could create additional problems for the banking industry, as savers deplete deposits at some lenders.
But he said he wasn’t worried about a systemic collapse: “We may see more incidents, but I don’t think there’s a systemic problem because we don’t have a systemic credit problem.”
The Blackstone boss made the remarks after the group reported that its profits fell sharply in the first quarter and its fundraising slowed as investors grappled with fears about the health of the commercial real estate market and a slump. in trading activity.
Blackstone attracted $40 billion in capital from new investors in the first quarter, a decline of more than 5% from the prior quarter, as investors made fewer new commitments to the group’s private equity and real estate funds.
The slowdown left Blackstone with $991 billion in assets under management, just shy of the $1 trillion in assets milestone that its executives were already hoping to hit as a new high water mark in the private equity industry.
Those plans were thwarted by a negative turn in financial markets that caused investors to withdraw money from two fast-growing funds Blackstone created for wealthy individual investors, limiting their growth and profits.
Fundraising challenges, combined with downgrades at some of Blackstone’s biggest real estate funds, caused the New York-based group’s fee income and profits to fall sharply from this time last year.
Blackstone’s fee-related earnings, a measure of the base management fees it collects, were $1 billion, down 9% from a year ago, while its distributable earnings, a metric preferred by analysts as a measure of total cash flows: fell 36 percent to $1.25 billion. Fee income slightly missed the estimates of analysts surveyed by Bloomberg, while earnings slightly beat expectations.
The group raised most of its capital for credit- and insurance-based investments, two newer businesses it built after becoming a giant in property acquisitions and investments.
Rising rates have made Blackstone’s credit funds more attractive, which invest in floating-rate loans that benefit from higher borrowing costs. But the sudden rate hike has rattled the company’s $70 billion property fund, Blackstone Real Estate Income Trust, which has been plagued with loud redemption requests since last November. It has caused the fund to honor only a fraction of the monthly and quarterly withdrawal requests Blackstone receives.
The restrictions highlighted the tremors felt on Wall Street as central banks exited the era of ultra-low interest rates, which later spilled over into the US banking system during the Silicon Valley Bank collapse.