Meet the Monster Stock That Continues to Crush the Market

Key Points

• Blackstone has grown into the world's largest alternative investment manager.

• It has capitalized on investors' growing appetite for alternative investments.

• The firm is in a strong position to continue growing briskly.

• 10 stocks we like better than Blackstone ›

The S&P 500 has posted strong gains over the last decade. It has delivered more than 300% in total returns -- about a 15% annualized rate -- which is significantly above its historical average annual return of about 10%. This strong performance has set a high bar for other investments.

However, some stocks have stood out for their ability to deliver absolutely market-crushing returns. One of those market mashers is Blackstone (NYSE: BX). The global leader in alternative investment management has produced a total return of more than 780% over the past 10 years (24.4% annually). It has also crushed the market over the past one, three, and five years. Here's a closer look at this monster stock.

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A leader in investment alternatives

Blackstone has built the world's largest alternative investment management firm, with over $1.2 trillion in assets under management (AUM) as of the end of the second quarter. The company generated $1.6 billion in distributable earnings during the second quarter (up 25%) and $6.4 billion over the past year.

The firm has grown significantly over the past decade. At the end of 2015, Blackstone had $336 billion in AUM and produced $787 million in distributable earnings for the full year. A big factor driving its robust growth is the rapid expansion of the alternative investments market over the years. For example, in 2002, the entire AUM of the alternatives market was $2 trillion, which was only about 5% of the global investment market at the time. Fast-forward a couple of decades, and the AUM of the global alternatives market has now reached $25 trillion, representing 15% of the global investment market as more investors increase their allocations to alternative investments.

Blackstone has captured a significant percentage of this growth due to the strength of its brand and the expansion of its franchise. With a long history of delivering strong returns for investors in its funds, the company has made its platform a magnet for new capital. In addition, Blackstone has expanded its platform into new areas. Notably, it was an early leader in bringing alternative investment opportunities to individual investors through the launch of its popular nontraded REIT (Blackstone Real Estate Investment Trust or BREIT) and other investment vehicles.

Lots more growth ahead

Blackstone is in a strong position to continue growing at a rapid pace. One factor is the continued growth of the alternative investments market. By 2032, forecasters expect AUM across the alternatives sector to reach more than $60 trillion, or over 20% of the $300 trillion global investment market. They anticipate that investors will allocate more to alternatives because they produce higher returns and more predictable cash flows with less volatility than the public stock and bond markets.

In the past, institutional investors have been the primary drivers of alternative AUM growth, as pension funds, sovereign wealth funds, and insurance companies have steadily increased their allocations to the sector. While institutions will continue to invest more capital in this space in the future, a major new growth catalyst is emerging as more individual investors seek to tap into the alternative investment market. Blackstone has been a leader in opening doors to alternatives for individual investors. The company currently has a market-leading $280 billion of AUM from its private wealth channel, which is up 30% over the past year.

Private wealth is a vast opportunity for Blackstone, as individual investors hold an estimated $140 trillion in wealth. To capture this market, Blackstone has launched several products designed to meet their needs. For example, it launched the Blackstone Private Multi-Asset Credit and Income Fund this past May to provide greater access to private credit investments. Additionally, Blackstone is collaborating with Wellington and Vanguard to provide more alternative investment options to individual investors.

Private credit investments represent another massive growth opportunity for Blackstone. As traditional banks struggle to meet the credit needs of companies, Blackstone is emerging as a leader in filling this gap. At the end of the second quarter, its private credit AUM was $484 billion, a threefold increase over the past five years. The company sees significant potential to provide credit solutions to businesses and credit investment opportunities to individuals and insurance companies.

Blackstone should continue to crush the market

Over the years, Blackstone has routinely delivered returns that outpace the market by capitalizing on growth in alternatives. The firm is strongly positioned to sustain this momentum as more investors turn to alternative assets, supported by Blackstone's ability to roll out new products that meet their evolving needs. This creates a compelling opportunity for investors to benefit from a company poised to continue beating the market.

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Matt DiLallo has positions in Blackstone. The Motley Fool has positions in and recommends Blackstone. The Motley Fool has a disclosure policy.