Blackstone made its name by buying undervalued companies and real estate. But in the third quarter of this year, the company's burgeoning credit arm was the star of the show.

In reporting earnings on Thursday, the New York buyout firm said its business of cobbling together and investing in loans was now its largest unit by assets. The so-called credit and insurance division has $354.7 billion worth of assets under management, up 22% over last year. By contrast, Blackstone's private-equity business manages $344.7 billion, and its real-estate-investing arm, the firm's largest business at the start of the quarter, has $325.1 billion worth of assets under management.

"Today, we manage the largest third-party private-credit business in the world," Blackstone's president and chief operating officer, Jonathan Gray, said in a call to discuss the firm's financial results. "We have one of the largest, if not the largest, businesses in direct lending, CLOs, real-estate debt, and private investment-grade credit."

Blackstone's private-credit coronation comes as the alternative-investments industry increasingly turns toward a growing opportunity in nonbank lending. A combination of high interest rates and a banking crisis that has considerably slowed bank lending has increased demand for nonbank loans. Since these lenders often charge higher interest rates, institutional investors are also clamoring to provide capital for these loans to juice fixed-income returns.

Blackstone has been tapping into investor demand for private loans in recent months, including what Gray described as a "dramatic increase in demand for all forms of investment-grade private credit."

Both Gray and Blackstone's founder and CEO, Steve Schwarzman, meanwhile, seem to think Blackstone's private-credit boom is just getting started.

"We are building a third-party performing-credit juggernaut, and we expect our business to grow significantly from here," Gray said.

While Blackstone now claims to be the largest third-party credit provider, Apollo is the largest nonbank lender, with $562 billion in private-credit assets under management. Apollo has relied on Athene, an insurance company it owns, to lend, while Blackstone has focused on investing others' money, forming strategic partnerships with four insurance companies, including Resolution Life, and financial-advisory relationships with another 20.

Gray said he expected the insurance industry to continue writing checks to private-credit investors, especially in direct lending, a $25 trillion opportunity that's still in "very early days."

He said that Blackstone's focus on partnering with investors, instead of competing with them by having its own insurance company, would help the business grow.

"We're not in the market selling annuities," Gray said. "We are a third-party investment manager, and that definitely helps the conversations and helps our momentum here."

Gray said the firm saw more pension funds and sovereign-wealth clients moving into the space as well.

"I think over time it's going to move beyond insurance," he said. "We're having good dialogue with pension clients. I think we'll see sovereign-wealth funds start to do this as well."

Blackstone's private-credit arm has generated 16.7% in returns over the past 12 months, though falling interest rates "put some pressure on absolute returns," Gray said. He expects investors to continue to flock to the strategy so long as it can produce returns at a premium to traditional fixed-income investments, he added.

Blackstone on Thursday reported distributable earnings, or cash that pays dividends, of $1.3 billion, up 6% over last year — and beating expectations. Total assets under management climbed 10% from last year to $1.1 trillion. The firm's stock price approached its record high of $172 a share in midday trading amid what Schwarzman described as a "broad-based acceleration across our businesses."

The firm has been making a record number of investments over the past few months, especially in commercial real estate. Blackstone executives called a CRE bottom earlier this year, and the company has deployed more than $24 billion into real-estate debt and equity over the past 12 months.

It's also been investing big in AI infrastructure, particularly data centers, which will power the artificial-intelligence revolution. In September, the firm said it would acquire AirTrunk, the largest data-center platform in the Asia-Pacific region, in a $16 billion deal alongside the Canada Pension Plan Investment Board.

With $70 billion worth of data centers, and over $100 billion of prospective development, Schwarzman said the firm had become "the largest data-center provider in the world" in only three years.

Opportunities to cash out of investments to drive returns for investors continue to remain sluggish, however. On Thursday, both Schwarzman and Gray said there were plenty of signs that dealmaking was bouncing back, spurred by expectations for lower rates.

Gray said the firm's private-equity nondisclosure agreements were up 2.5 times in September compared with the same time last year, suggesting an increase in discussions about prospective deals.

He also predicted growing demand for initial public offerings, which could help the firm sell some assets and generate returns for its limited partners and fees for shareholders and employees.

Gray described a meeting he went to this week where the IPO discussion had gone from "theoretical to the practical." Gray said the discussion was now along the lines of, "What's the right size? Should we do it in February or April?"