Blackstone’s Burgeoning AI Business and Inflows Spark a Rally

Higher rates have come for private capital. Blackstone, the world’s largest alternative asset manager, reported Thursday that distributable earnings, a key profit metric for investment firms with shareholder dividends, fell 9% in the third quarter to $1.7 billion.

The market has not been kind lately to private capital firms like Blackstone, judging them to be at risk if this year’s topsy-turvy investing climate leads to slower growth. Its shares have fallen 23% on the New York Stock Exchange this year. But, with management presenting a confident front, solid inflows and business from artificial intelligence activity robust, shares rallied 8.4%.

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Nine months ago, Blackstone President Jon Gray told the Financial Times that the firm was looking at “one of our largest IPO pipelines in history.” That was before the year’s energy crisis and bond sell-off turned companies more skittish than a housecat in front of a running bath. Global M&A activity fell 41% in the third quarter compared to the quarter before, dipping below $1 trillion for the first time since mid-2025, according to LSEG, as higher bond yields and a Fed rate hike pushed up borrowing costs. Several high profile debuts have been put on ice, including those of Blackstone-backed data center operators AirTrunk and Firmus.

Higher borrowing costs also appear to be making it harder to close asset sales. That tracks with a 34% decline in Blackstone’s net realizations – the proceeds it makes from exits – to $332 million. Net realizations from private equity, in particular, fell 49% to $194 million.

The rising rate environment did no favors for the property business, either. Blackstone’s real estate division reported a 21% drop in net realizations to $54 million. “Obviously, rates went up and that has an impact particularly on slower growing assets: multifamily in the US, some of the assets in Europe,” said CFO Michael Chae, on the company’s quarterly earnings call. Earlier this month, signs of that stress emerged when a $1.3 billion loan linked to Blackstone’s multifamily portfolio was moved to special servicing, with Morningstar noting it has “been selling off properties to repay.” 

• Net realizations at Blackstone’s credit and insurance unit rocketed up 43% to $70 million. The firm has been a leader in financing new AI-related infrastructure investments, including $9 billion in one Anthropic project where it reportedly scored a yield above 10%.
• Gray called the need for capital in the AI sector “unprecedented in our lifetimes” and said he thinks it will be possible to “command a higher yield” and thus lock in higher returns from demand-driven widening credit spreads on AI-related debt.

The Big Fundamentals: Key to Thursday’s rally was Blackstone posting strong inflows of $63.3 billion in the quarter, which lifted assets under management to $1.37 trillion and helped fee-related earnings increase 6% to $1.6 billion. “There’s been no private credit apocalypse,” Gray said. Management projects that realizations will rise considerably in the fourth quarter before giving way to an “outstanding” 2027. The average price target of $137.43, according to 25 analysts monitored by Zacks Investment Research, implies a 25% upside on the stock.