Stephen Schwarzman, CEO of private equity firm Blackstone, says that now is a good time for deals in his industry, despite the continued turmoil in credit markets and weakness in the U.S. economy.
“We’ve always found the best returns in private equity come from transactions done in the first year or two of the credit crisis,” he told the Financial Times in a recent interview.
Ironically, returns for deals made now could far surpass those for deals made during what appeared to be the salad days of 2006 and 2007.
“The heyday of 2007 was pretty remarkable in terms of the kind of credit one got,” Schwarzman says.
“It’s unclear whether the deals done during that period will offer the best returns for private equity investors.”
For that very reason, his own firm did only one deal last year, purchasing Hilton Hotels. “We significantly cut back in 2007,” Schwarzman says.
Of course Blackstone did do a major deal of another sort last year, consummating an initial public offering for its own shares. Since opening trading last June at $36.45, Blackstone shares have slumped almost 50 percent.
“I think we ended up — to some degree through happenstance — selling our securities at what proved to be a market peak,” Schwarzman says.
That worked out just fine for Schwarzman: He took $449 million out of the firm at the IPO. But his remaining 23 percent stake in the company has plummeted, along with the shares of other investors.
“We believed that the debt cycle was somewhat extended, but no one likes to sell securities a week or two before a market peak, because it’s not a good result for the buyers of those securities,” he says.
“So actually I wish that the cycle would have extended for another year or longer, so that people who bought the stock at the IPO would have had much better after-market performance. I’ve always been trained that everyone should win in those types of transactions.”
On another subject, Schwarzman says Western criticism of sovereign wealth funds is self-defeating.
A Chinese fund bought a stake in Blackstone last year. Schwarzman says he isn’t worried that foreign funds will try to use their economic clout to advance political interests against the United States.
“I’m not worried at all, and I think the negative attitude toward the sovereign wealth funds is quite unjustified,” Schwarzman says.
“Sovereign wealth funds function very much like U.S. pension funds. They have highly diversified positions and professional management. No one has found a case where they’ve made uneconomic investments for political reasons.”
Indeed, their investments have proved a lifeline to troubled financial giants like Citigroup and Merrill Lynch, Schwarzman argues. All the criticism of sovereign funds has simply kept them from investing more in capital-starved financial firms.
“That has occurred,” Schwarzman says. “Since the attack on sovereign wealth funds occurred [early this year], to my knowledge there have been no investments made by the sovereign wealth funds in financial institutions in the U.S.”
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