Blackstone Holds Record $156 Billion Dry Powder, Emphasizes ‘COVID-resilient’ Sectors
July 23, 2020 | Drew Wilson | S&P Global Market Intelligence
The Blackstone Group Inc. holds an industry record $156 billion in dry powder, but it is too early to deploy capital into distressed assets, President and COO Jonathan Gray said during the firm’s second-quarter earnings call.
“In real estate assets, the foreclosure process takes time, so more distressed opportunities in private markets are ahead of us,” he said.
Gray sees opportunity in office buildings and hotels, which he believes face cyclical challenges. “Over time, we think people will return to office buildings,” Gray said. “It’s very hard to run a business remotely.”
However, the firm is hesitant to invest in retail and enclosed malls, where the challenges are long term, he added.
M&A is down about 50% since the onset of the crisis in March, Gray estimated. “Once we have a vaccine, you’ll see a step change increase in deal activity. Having that $156 billion in dry powder is very helpful.”
The firm’s amassed capital was driven by fundraising activity for the latest flagship funds. Among the products highlighted on the call were the Blackstone Life Sciences V LP, which pulled in $4.6 billion, the largest amount ever raised for its kind, according to the firm. About 26% of the capital is already committed.
Additionally, new real estate and private equity secondaries funds brought total secondaries AUM to $40 billion, and each fund exceeded prior vintages.
Wide dispersion of sector performance
Chairman and CEO Stephen Schwarzman maintained an optimistic outlook, citing Blackstone’s rebound in investment performance from the depths of the first quarter. “Investment performance rebounded sharply, we continued to deploy capital in high conviction sectors and our limited partners entrusted us with another $20 billion of inflows across our expanding platform,” he said in the firm’s earnings release.
Management emphasized the split in real estate holdings’ investment performance. Logistics, life sciences and locations such as China with faster economic recovery did well, while the hospitality and retail sectors continue to fight significant headwinds.
As an example, Gray said rent collections at the firm’s offices and logistics holdings are at 95% of typical levels, while in retail collection is at 50% to 60%.
Logistics companies, the largest exposure in the real estate portfolio, are benefiting from an acceleration of e-commerce growth, with online sales up 60% overall since the onset of the crisis in March, the firm said.
Similarly, the corporate private equity portfolio has 70% exposure to COVID-resilient companies, Gray said.
One key takeaway from the COVID crisis is sticking with sustainable long-term trends, such as the tech-driven transformation of the global economy.
“Betting against those trends is clearly not a good decision. Investing in the right sectors has really been a difference maker,” Gray said.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division.
