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Blackstone Group: Access the Private Markets

financials investing strategies Mar 17, 2021

We often hear from you all that you'd like a way to invest in "alternative investments" that aren't traditional public equities. Specifically you want a way to gain access to either real estate investments, private companies, etc., that most people do not have access to.


Enter Blackstone:

While Blackstone (BX) is a financial stock, it is very unique from its counterparts because BX traditionally only invests in these types of asset classes. And by investing in BX, you're subsequently gaining diversified access to these types of investments. Whereas with other financial stocks you're gaining exposure to their interest rate exposure, banking exposure, etc. Stocks like BX offer you a unique, cheap, easy and liquid way to invest in these types of asset classes short of owning the asset itself.

Now that we've identified why an investment like BX is appealing, let's now discuss why BX itself is a strong suitor. BX, trading at 23x earnings, is not only a fundamentally sound valued stock, but also has tremendous growth opportunities that should help propel revenue growth as well as EPS YoY for the next several years! What are those growth opportunities? BX is in a unique position to capitalize on its thematic views while also commanding higher market share, thus creating a double sided engine where growth is stimulated via asset under management (AUM) fee's as well as overall returns on its portfolio. Let's discuss these two dynamic areas further.


AUM Fee's:

  • Based off of BX's projections, BX is forecasting an additional $400 billion to flow into the firm over the next 3 years. Yes, we just said $400 billion... This inflow of funds can fully transform BX’s revenue and earnings base into a higher function of predictable recurring revenue - which as investors we love to see. This is very unique for the "finance sector" bringing in a SaaS like revenue model.
  • We also believe that this inflow of funds (and therefore revenue) will allow BX to launch products quickly and begin to grow organically into new sectors thereby unlocking new growth vectors (e.g. growth equity, infrastructure and life sciences are newer strategies that did not exist 5 years ago - and today are some of their key core growth drivers). With private markets set to grow at 10% YoY for the next 5 years, BX looks poised to take a large share of this growing market!


Portfolio Returns:

  • BX has long been a leader in delivering strong returns (both for themselves and investors). With most of their funds on a 2 & 20 model (2% management fee's plus 20% of the returns), BX's incentives are aligned with their investors. When factoring in the AUM growth in conjunction with their return profile, we see an estimated $80 million in additional revenue by just the increase in AUM (estimated as 10% annual returns multiplied by 20% of the upside). Using this high margin additional capital, BX can reinvest in their core product suite, to expand earnings even further!


Thematic Views:

So what are you investing in when you invest in BX?

  • Within the private equity space, they said their team has seen investment opportunities in areas such as e-commerce, travel, online content, software, green energy, and life sciences.
  • Within real assets, BX's core portfolio consists of real estate, real estate private equity, infrastructure and real estate credit.
  • Additionally you'll gain exposure to the general credit markets as well as customized solutions such as direct investments, fund of funds, macro funds, emerging markets, etc.



Long story short, we see BX as not only being a diversifying asset but a strong one investment too. BX has and continues to be a leader in the space and we see more innovation coming. These changes should directly lead to increased margins and EBITDA growth. Our price target was derived by factoring in this increased growth to our DCF model! Please let us know if you have any questions!



Ticker: BX

Rating: Overweight

Price Target: $91

Target Date: 8-12 Months