After a strong second quarter, asset management giant Blackstone is considering a conversion from a partnership to a corporation to take advantage of changes to the tax law.
The firm reported its 2018 second-quarter earnings on Thursday ahead of market’s open. Economic net income rose 55 percent from the year-ago quarter, climbing to 90 cents per share, well ahead of the 75 cents per share that analysts had been expecting, according to Thomson Reuters I/B/E/S. Total revenues surged 71 percent over the period, to $2.63 billion.
For the quarter, Blackstone reported $20 billion in inflows for the quarter and $120 billion inflows for the past twelve months. Assets under management were $439.4 billion, up 18 percent year-over-year.
And Blackstone expects to continue to grow. Its chairman, chief executive officer, and co-founder Steve Schwarzman said during a conference call discussing the results that Blackstone expects to hit the $500 billion mark for assets under management during the first half of 2019.
“The firm continued to deliver very attractive investment returns,” he said. “We have significantly outperformed global markets. As a result, our LP investors are entrusting us with more capital.”
This, in turn, will lead to the continued ability for Blackstone to raise long-term capital, noted Schwarzman.
Though the firm reported strong results for the quarter, it is considering what more market volatility and changes to the tax law will mean for the asset management industry.
One major change on the minds of Blackstone executives: whether the firm should convert itself from a partnership to a corporation, following in the footsteps of private equity giants KKR & Co. and Ares Management, both of which converted to the structure earlier this year.
“KKR’s recent stock performance relative to their change has been noteworthy,” said chief financial officer Michael Chae during the earnings call. “We will continue to take a deliberate and hard look at our options.”
[II Deep Dive: KKR Follows Ares in Converting to Corporation]
Converting to a corporation has its advantages under the Tax Cuts and Jobs Act, which reduces the corporate tax rate to 21 percent. It was previously 35 percent.
“This is obviously a big decision for us, and one we can make only one time,” said Jonathan Gray, Blackstone’s president and chief operating officer, during the call. “It has meaningful tax implications to our shareholders.”
According to Gray, the firm is looking at how other market participants have converted their structures, stock price performance, mutual fund ownership, and index inclusion to determine whether they will convert to a c-corp.
“We’re going to try to be as thoughtful as possible before we make a decision,” Gray said.