Tags: Schwarzman | Blackstone | earnings | market

Blackstone's Schwarzman Calls Market Decline 'Overreaction'

Thursday, 16 October 2014 02:25 PM

Stephen Schwarzman, Blackstone Group LP’s chief executive officer, said the recent declines in financial markets are an “overreaction” and the U.S. economy continues to do well.

“We’ve got an overreaction going on because of health concerns and foreign policy concerns and all this stuff coming together that’s just scaring people,” Schwarzman said on a conference call Thursday with investors and analysts. “There’s this sense that we’re out of control, and that’s being reflected into markets. The U.S. economy is doing quite nicely.”

Blackstone, the world’s largest manager of alternative assets such as private equity and real estate, is ready to take advantage of the volatility, which has forced some hedge funds to liquidate positions, Schwarzman said. The firm’s credit group, GSO Capital Partners, is ready to “feast” on lower-rated, long-term debt, especially in Europe, after “waiting patiently for something bad to happen,” said Schwarzman, who co-founded Blackstone in 1985.

The Standard & Poor’s 500 Index has lost 7 percent since reaching a peak on Sept. 18 as concern intensified that global growth is slowing and oil prices slumped. European shares entered a correction and investors have also sold the type of high-yield, high-risk debt that GSO is targeting.

Shares Slide

Blackstone fell 2.1 percent to $28.46 at 12:40 p.m. after earlier tumbling as much as 8.6 percent, the biggest decline since November 2011. The New York-based firm today reported third-quarter profit of 66 cents a share, missing analysts’ expectations of 71 cents, according to the average of 15 estimates in a Bloomberg survey.

Failing to meet analysts’ expectations “was driven by a combination of lower-than-forecast performance fees in the traditional private-equity segment as well as a higher-than- anticipated tax rate,” Jefferies Group LLC analyst Dan Fannon said today. “Underlying fundamentals including fundraising, realization activity, investment activity and portfolio performance all remain strong.”

Schwarzman, who is worth $9.7 billion according to the Bloomberg Billionaires Index, echoed comments from Federal Reserve Chair Janet Yellen, who voiced confidence in the durability of the U.S. economic expansion in the face of slowing global growth at a closed-door meeting last weekend, according to two people familiar with her comments.

Dry Powder

Tony James, Blackstone’s president, said today the firm has $42 billion of dry powder available to take advantage of dislocations in the price of assets.

The firm said its buyout portfolio appreciated 3.7 percent in the third quarter, outpacing the 0.6 percent advance in the Standard & Poor’s 500 Index of large U.S. companies. The gain compared with a 3 percent increase in the buyout holdings at Carlyle Group LP, which releases fund performance earlier than its full earnings.

Blackstone’s real estate funds sold shares of hotel operator Extended Stay America Inc. in the third quarter and completed a sale of five Boston office properties to a venture led by Oxford Properties Group Inc. for more than $2 billion. The private-equity group sold shares of oil and gas producer Kosmos Energy Ltd. and packaged-foods distributor Pinnacle Foods Inc. Blackstone also took public travel-booking platform Travelport Worldwide Ltd., health-care products maker Catalent Inc. and solar-panel installer Vivint Solar Inc.

Not Hostages

“Public markets alone do not dictate realizations for us, we’re not hostages of the stock market,” Schwarzman said on the call. “A market readjustment might delay certain public-market dispositions in the near term, but if the timing is impacted we’d expect out companies to continue to grow very nicely while we wait.”

The firm is seen as a bellwether for the buyout industry given its size and reach across markets. KKR & Co., the New York-based firm run by cousins Henry Kravis and George Roberts, is set to report third-quarter results next week, followed by Washington-based Carlyle on Oct. 29.

Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, overhaul and then sell them. The funds are returned with a profit to investors in the cycle, which lasts about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1 percent to 2 percent of committed funds and keep 20 percent of profit from investments as a carried interest.

Blackstone raised $13.1 billion during the quarter, helping boost assets under management to an industry record $284.4 billion from $278.9 billion at the end of the second quarter. James said the firm will start raising money for its seventh global buyout fund by year-end and for its eighth opportunistic real estate pool early next year. The LBO fund will seek about $16 billion, a person familiar with the plans said last month.

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Stephen Schwarzman, Blackstone Group LP's chief executive officer, said the recent declines in financial markets are an "overreaction" and the U.S. economy continues to do well.
Schwarzman, Blackstone, earnings, market
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2014-25-16
Thursday, 16 October 2014 02:25 PM
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