Blackstone’s Gray Talks Recovery Plays, Perpetual Funds as Pandemic’s End Nears
June 8, 2021 | S&P Global Market Intelligence
With expectations that the end of the pandemic is near, The Blackstone Group Inc. is focusing on investments in companies expected to benefit significantly as economies reopen and revive, President and COO Jonathan Gray said during a virtual presentation at Bernstein’s 37th Annual Strategic Decisions Conference on June 3.
To help offset the risk of multiple compression that could arise from higher sustained inflation rates, the firm is employing a thematic investment approach and opting to invest in what Gray calls “one derivative off.” It involves benefiting from megatrends that offer opportunities for cash-flow growth without having to pay a megatrend price. Gray expects a robust economic recovery over the next 12 months, thanks to the ongoing vaccine rollouts and the massive stimulus plan in the U.S., but warns that a higher inflation-rate environment is looming.
Expecting the so-called global cabin fever to end and thereby buoy travel and leisure activities post-pandemic, the firm is also acquiring hotels across Asia, Europe and the U.S., a theme park business and aviation businesses. Most recently, the firm was part of an investor group that struck a deal to acquire Signature Aviation PLC at a valuation of roughly $4.73 billion.
To capitalize on big growth trends such as the rise of e-commerce, the surge of new home construction and explosion of streaming content, Blackstone is investing largely in logistics, apartment and studio assets for its real estate portfolio. A key sector is life sciences and the firm is buying buildings to house life science researchers while investing in companies that have products in advanced clinical trials.
Focus on Perpetual Capital
Another area that Blackstone is emphasizing is its perpetual capital base. The firm has rolled out 15 perpetual vehicles thus far, with plans to continue to grow that number, Gray noted.
Unlike the firm’s traditional buy it, fix it, sell it and send the money back format, perpetual capital vehicles are not obligated to return the capital to investors within a finite timeframe. These vehicles allow the firm to receive incentive fees on performance based on valuations, rather than based on realizations in sales, Gray explained.
A key driver for the firm’s perpetual capital strategy is the increasing move by alternative asset managers into insurance. Blackstone uses an asset-light model which does not put the insurance assets on its balance sheet.
“In insurance, we’ll find ways to grow there even though we will not own an insurance company,” Gray said.
“When I look at the best companies in the world, they tend to be balance sheet-light. They tend to grow based on brand. And that’s what we’re trying to do.”
