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Stephen A. Schwarzman, the head of the Blackstone Group, took home $452.7 million, also more than double what he made in the previous year.
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A booming market creates challenges of its own for the industry. Private equity firms are collectively sitting on nearly $1.1 trillion of capital they must invest for clients — “dry powder” in Wall Street parlance — more even than they had before the crisis, according to the data provider Preqin. But if the buyout firms overpay, investment returns, and executive payouts, will fall, a conundrum weighing on the minds of the industry’s leaders.
“We can still survive and make clever investments in the environment we’re in now. However, you have to be careful,” Joseph Baratta, the head of private equity at Blackstone, said in an interview on Tuesday. “With the available credit at high levels, and the cost of it at historic lows, you can talk yourself into doing things that may not be prudent in terms of values you have to pay.”
Private equity firms, which buy companies and typically hold them for several years, ran into this problem in the years leading up to the 2008 crisis. But a number of investments that seemed doomed when the crash hit have been sold or taken public at rich valuations, thanks in part to clever management and financial engineering — and thanks as well to the soaring market.
Blackstone, the biggest of the firms, realized a $9.5 billion profit in December when it held an initial public stock offering for Hilton Worldwide Holdings, a hotel chain that struggled in the downturn. That gain was outpaced only by Apollo, which achieved a profit of roughly $10 billion from its investment in the chemical maker LyondellBasell Industries.
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One private equity chief went so far as to publicly thank Ben S. Bernanke, the Federal Reserve chairman until last month, whose program of extraordinary economic stimulus has helped push stocks higher, feeding the private equity machine.
“Thank you, Ben Bernanke. I saw him last Thursday, and I thanked him,” Mr. Schwarzman of Blackstone said during a conference in December. “The opportunity for us to be able to attract funds is very, very high.”
Stephen A. Schwarzman, the head of the Blackstone Group, took home $452.7 million, also more than double what he made in the previous year.
We can still survive and make clever investments in the environment we’re in now. However, you have to be careful...
coffin_dodger » Tue Sep 09, 2014 5:00 pm wrote:
What is it, in your opinion Wom, that these finance guys are privy to, that inclines them to think that this can end any other way than badly? Surely they must know when it implodes it will affect everyone? Or is it a case of making hay/fiddling whilst the USA burns?
...over the past 10 years, the five pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return…
Until now, Mr. Stringer said, the pension funds have reported the performance of many of their investments before taking the fees paid to money managers into account. After factoring in those fees, his staff found that they had dragged the overall returns $2.5 billion below expectations over the last 10 years.
Over the last 10 years, the return on those “public asset classes” has surpassed expectations by more than $2 billion, according to the comptroller’s analysis. But nearly all of that extra gain — about 97 percent — has been eaten up by management fees, leaving just $40 million for the retirees, it found.
“We asked a simple question: Are we getting value for the fees we’re paying to Wall Street?” Mr. Stringer said. “The answer, based on this 10-year analysis, is no.”
for those of us with LCCs, inspiring stuff.
Schwarzman: Sanders’ Rise ‘More Stunning’ Than GOP Primary
Democratic presidential candidate Bernie Sanders’s popularity “is almost more stunning than some of the stuff going on on the Republican side,” Blackstone CEO Stephen Schwarzman says in interview with Bloomberg Television.
“What’s remarkable is the amount of anger, whether it’s on the Republican side or the Democratic side,” Schwarzman says in Davos, Switzerland.
"Bernie Sanders to me is almost more stunning than some of the stuff going on on the Republican side, How is that happening, why is that happening? What is the vein in America that is being tapped into across parties that’s made people so unhappy? That’s something you should spend some time on."
Delicious: http://www.bloomberg.com/politics/track ... op-primary
Schwarzman: Sanders’ Rise ‘More Stunning’ Than GOP Primary
Democratic presidential candidate Bernie Sanders’s popularity “is almost more stunning than some of the stuff going on on the Republican side,” Blackstone CEO Stephen Schwarzman says in interview with Bloomberg Television.
“What’s remarkable is the amount of anger, whether it’s on the Republican side or the Democratic side,” Schwarzman says in Davos, Switzerland.
"Bernie Sanders to me is almost more stunning than some of the stuff going on on the Republican side, How is that happening, why is that happening? What is the vein in America that is being tapped into across parties that’s made people so unhappy? That’s something you should spend some time on."
According to Naked Capitalism, he also told CNBC he'd choose Trump over Cruz.
I love how he treats the Bloomberg interviewer like an employee. "That's something you should spend some time on."
A handful of industries are those "love to hate" types of businesses, such as cable-television companies and Internet service providers.
The federal government has joined the ranks of the bottom-of-the-barrel industries, according to a new survey from the American Customer Satisfaction Index. Americans' satisfaction level in dealing with federal agencies --everything from Treasury to Homeland Security -- has fallen for a third consecutive year, reaching an eight-year low.
The declines represent some backsliding for the U.S. government, given that satisfaction saw some improvement in 2011 and 2012, which may have been the result of spending in the wake of the recession. While the comparison with private enterprise isn't apples to apples given the nature of government services, the findings have some implications for bureaucrats.
"Satisfaction is linked to broader goals in the political system that it wants to maximize, like confidence and trust," said Forrest Morgeson, director of research at the ACSI. "It's much more difficult to govern if the entire population dislikes you."
Although satisfaction is down for the federal government as a whole, the research found that consumers have vastly different views of specific agencies. The department that received the highest score was the Department of the Interior, which received a ranking of 75 points. That could reflect Americans' positive feelings toward national parks, which many visit while on vacation, Morgeson noted.
The lowest-ranked department may not be much of a surprise to taxpayers: Treasury, which received a score of just 55 points, or 20 points below the Department of the Interior. Treasury, as a reminder, oversees the IRS.
"If you think about the most contacted government agency, it'll be the IRS," Morgeson said. "If you think about what the IRS does, which is take money from citizens, you'll have low satisfaction."
Despite the overall lower score for the government, there were some signs of improvement in citizens' experiences, with the feds earning improved scores in customer service and information, which means many citizens believe agencies are delivering information in a clearer way than a year ago.
The government report is based on surveys with more than 2,000 people who were surveyed late last year.
Ren Jianxin, the architect behind China National Chemical Corp's $8 billion bid for Italian tiremaker Pirelli PECI.MI, is rare among Chinese state company bosses: he gets the importance of markets and the limits of government assistance.
ChemChina's 57-year-old chairman, who agreed last week to buy the world's fifth-largest tiremaker, sees himself as an "industrialist" and not as a politician - a route taken by many senior state-enterprise officials.
Over three decades, Ren has led the restructuring of China's chemicals industry, organizing more than 100 firms under the ChemChina banner into six main operating divisions, producing everything from basic chemicals to fertilizers and silicones. Along the way, he also founded the Malan Noodle Co, a popular restaurant chain.
His biggest gambit, though, has been to globalize ChemChina through acquisitions aimed at bringing international brands and professional management to China. Since 2006, he has spent about $4.4 billion on firms in Australia, France, Norway and Israel. In 2007, Ren also sold a 20 percent stake in Bluestar, his specialty chemicals arm, to private equity firm Blackstone (BX.N) for $600 million.
ChemChina is one of the largest chemical companies in China. It is 100% owned by the State Council of the People's Republic of China and supervised by China's State-owned Assets Supervision & Administration Commission. Its business includes agrochemicals, rubber products, specialty chemicals, industrial equipment and petrochemical processing.
"Moody's expectation of strong support from ChemChina to Bluestar is based on Bluestar's majority ownership by ChemChina, the subsidiary's important role in carrying out its parent's strategy of innovation and investment in specialty chemicals, and its significant contribution to the sales and earnings of ChemChina," says Gerwin Ho, a Moody's Vice President and Senior Analyst.
In 2014, Bluestar accounted for about 20% and 33% of ChemChina's consolidated revenue and EBITDA, respectively.
"Bluestar's fundamental credit profile is underpinned by the company's diversified chemical products, which include specialty chemicals," says Jiming Zou, a Moody's Assistant Vice President and Analyst, and also the Local Market Analyst for Bluestar.
Moody's points out that Bluestar's large number of products are used in sectors such as animal nutrition, electronics, construction, automotive, aerospace, clean energy, water treatment and packaging. The broad diversification in end-user markets results in stable revenues for Bluestar.
Moody's says that over the next few years, Bluestar will register good growth prospects, due to the good levels of domestic demand for animal nutrition, environmental science, and silicon products.
Antony Leung, Blackstone Group LP’s Greater China chairman, is stepping down to become Nan Fung Group Holdings Ltd.’s chief executive officer after seven years at the U.S. asset management firm.
Leung, who turns 62 in January, will take charge of the Hong Kong property developer in February, the companies said in a joint statement today. He will become a senior adviser to New York-based Blackstone and a member of its International Advisory Board, according to the statement.
The former Hong Kong financial secretary joined Blackstone in 2007 and brokered a $3 billion investment by China’s sovereign wealth fund into the U.S. firm’s initial public offering the same year. Including dividends, China Investment Corp. is estimated to have profited about $300 million from the stake, according to people familiar with the matter and data compiled by Bloomberg.
“During his seven years with Blackstone, Antony has helped build some of our most important relationships in China,” Blackstone CEO Stephen Schwarzman wrote in an internal memo obtained by Bloomberg News.
Leung helped Blackstone forge ties with CIC and raised money from state-backed institutional investors in China for the firm’s global funds. He oversees more than 120 Greater China employees for the firm, which has more than 220 staff members in the Asia-Pacific region.
Blackstone is in talks to sell Chiswick Park, a London office development that includes buildings leased to PepsiCo Inc. and Walt Disney Co., to CIC for about 800 million pounds ($1.3 billion), a person with knowledge of the matter said on Nov. 11. Blackstone gave CIC exclusive rights to review the asset, one of the people said.
CIC Investment
Blackstone agreed to sell a non-voting stake of less than 10 percent to CIC in May 2007 at about a 4.5 percent discount to the firm’s $31 IPO price. The private-equity firm has distributed $5.32 in dividends per share since its offering. Based on last week’s closing price of $27.56 and including the dividends, CIC’s shares are worth about $32.88 apiece, or 11 percent more than its entry price.
CIC’s press office didn’t immediately respond to a phone call or an e-mail seeking comment about Blackstone’s investment.
Leung, who sits on Blackstone’s executive committee, has helped bolster the company’s purchases of real estate assets in China. The firm is stepping up real estate investment in Asia, seeking to raise $4 billion for Blackstone’s maiden property fund focused on the region.
Largest Investment
Blackstone earlier this month agreed to buy a 40 percent stake in SCP Co., a Chinese shopping mall developer and operator, for about $400 million, a person with knowledge of the matter said at the time. It is the firm’s largest mall investment in Asia to date, said Chris Heady, head of Blackstone’s regional real estate business.
The company is also investing in property projects including distribution centers and a skyscraper in Shanghai, Schwarzman said in a Bloomberg Television interview on Oct. 24.
Blackstone hasn’t invested much in private equity in China since it established its presence in Asia in 2007 because the prices of those assets are too high, Leung said April 7. The firm named Michael Chae in December 2010 as the head of its Asian private equity business.
The firm purchased a 20 percent stake in China National BlueStar Group for as much as $600 million in October 2008, Blackstone’s first Chinese acquisition. That investment has yet to make a profit because of overcapacity in the chemical industry, a person familiar with the situation said.
Government Venture
Among Blackstone’s recent investments in China, Pactera Technology International Ltd. agreed last month to be bought in a transaction that values the Dalian-based provider of technology outsourcing services at $645 million.
Leung was Hong Kong’s financial secretary from May 2001 to July 2003. He joined Chase Manhattan Corp. in 1996 before it became JPMorgan Chase & Co., and left as Asia-Pacific chairman in 2001. Prior to that, he spent 23 years at Citicorp, which became Citigroup Inc.
Blackstone was the first global private-equity firm to set up a fund with the Chinese government, agreeing in August 2009 to a 5 billion yuan ($821 million) joint venture to target investments in Shanghai and neighboring areas.
Nan Fung was founded in 1954 by D.H. Chen, father of the company’s current Chairman Vivien Chen, according to today’s statement. The company owns residential, commercial and industrial properties.
China Investment Corporation is closing in on an acquisition of one of London’s largest office developments in what would be the highest value real estate purchase made by Beijing’s investment arm in Europe, underlining its growing ambition.
CIC is in exclusive negotiations with Blackstone, the US private equity group, over purchasing Chiswick Park, a 32-acre development in west London. The talks are advanced and the two parties could exchange on the deal before the end of November, according to people familiar with the process.
The deal, if it goes ahead, would mark only the second purchase made by CIC in the UK property market. The fund acquired Deutsche Bank’s £245m City of London headquarters last year, but has otherwise avoided the sort of mega-deals undertaken by the sovereign wealth arms of Singapore, Malaysia and Qatar.
Blackstone had originally marketed the sprawling business park, whose tenants include Pepsi, Swarovski, QVC and Tullow Oil, last year for about £800m.
The sale failed to attract the sufficiently high offers and was pulled, however. The private equity group instead refinanced the £600m of debt outstanding on the project and worked on constructing and leasing the last of 12 office blocks on the site.
CIC is discussing a price of between £650m and £800m, according to people familiar with the process. The sovereign wealth fund owns a stake in Blackstone, having invested $3bn into the private equity group before its initial public offering in 2007.
A sale of Chiswick Park would be the latest in a string of property disposals made by Blackstone this year. The group, which has grown to be among the world’s largest landlords by asset value, has either sold or floated billions of dollars worth of real estate since January as it takes advantage of rising property prices on both sides of the Atlantic.
Last week, Brixmor, the US shopping-centre landlord owned by Blackstone, raised $825m from its IPO. Blackstone is also selling a series of office developments in London, including its half stake in the Broadgate Estate in the City for $2.7bn to GIC, Singapore’s sovereign wealth fund.
Blackstone bought the Richard Rogers-designed Chiswick Park complex from a consortium of Aberdeen Asset Management, Schroders and Stanhope at the start of 2011 for £480m. Office space on the site rents for about £45 per sq ft – about 20 per cent less than in the City of London.
A spokesperson for Blackstone declined to comment on the process. CIC could not be reached for comment.
Summary
* Blackstone has increased its assets under management (AUM) nearly four-fold since going public in 2007. Higher AUM will lead to lucrative management and performance fees in the future.
* At the end of the third quarter, Blackstone had $85 billion in capital available to invest. A distressed market should give BX opportunity to invest that capital.
* Blackstone reports Q4 earnings on January 28. I'm looking for how much of this dry powder BX has been able to invest, and how much new capital has been raised.
* What's the most important success factor in the private equity industry? Is it above-market investment returns? A skilled and connected research team? Industry contacts for identifying buyout opportunities and potential distressed investments?
All of these factors are important, and it's hard to imagine a private equity firm being successful without healthy returns, a skilled research desk, and strong business relationships. But the real defining line between successful private equity groups and the mediocre firms is access to investment capital.
Without a material amount of assets under management (AUM), it doesn't matter how good the firm is at generating positive returns, or how connected their investment team is. Assets Under Management is the lifeblood of private equity success, enabling the firm to charge management fees and to earn incentive allocations when investments pay off.
When it comes to growing AUM, there is one private equity group that has separated itself from the competition. This week, the Wall Street Journal reported that since becoming a publicly traded company in 2007, The Blackstone Group (NYSE:BX) has increased assets under management by nearly four times. When the company last reported earnings, Blackstone had $334 billion under management.
Score one for Mr. Market.
The long-running campaign by the Blackstone Group’s chief executive, Stephen A. Schwarzman, to get investors to pile into his stock was hurt on Thursday when Blackstone reported a 70 percent decline in its core income for the fourth quarter.
With the stock market in broad retreat, the lucrative performance fees that Blackstone receives when it unloads various investments — and which are at the heart of the company’s business model — nearly vanished in the fourth quarter.
And as a result, its economic net income sank to $435 million in the fourth quarter from $1.4 billion in the quarter a year ago.
For the full year, Blackstone’s economic net income was $2.1 billion — down 51 percent from its record figure of $4.3 billion in 2014.
Blackstone’s stock, already down 41 percent from its recent high, took another dip on Thursday, losing as much as 5 percent before closing the day off about 2 percent.
Mr. Schwarzman has long contended that Blackstone should command a higher stock market price, like traditional asset managers BlackRock and T. Rowe Price, as opposed to the lower stock market valuation that investors now give it because of the volatility of its profits.
Even with the market turmoil, though, Blackstone reported a small increase in its assets under management, which rose slightly to $336.3 billion in the last three months — a period in which most large asset managers have been experiencing significant investment withdrawals.
In many ways, Blackstone’s fourth quarter highlighted the company’s unusual mix of pluses and minuses. The plunge in profits reveals how reliant it remains on its main private equity businesses, which reap lucrative performance fees when Blackstone can sell company and real estate stakes into a rising stock market.
For several years now, Mr. Schwarzman has been on a crusade of sorts, trying to persuade investors to look through the wild swings in the fees and focus more on the company’s extraordinary capacity to attract investor capital no matter the market conditions.
And to his point, Blackstone’s assets under management grew 16 percent for the year, to $336 billion — with $15 billion coming in the fourth quarter alone. For the year, the company raised $93 billion in capital, exceeding by a wide margin the total amount raised by competing alternative asset managers over this period.
Unlike other fund companies, Blackstone requires lockup periods of as much as 10 years — a point that Mr. Schwarzman makes incessantly when he pounds the table for his company.
That means that once the money comes to Blackstone, it stays for quite a while, generating fees. And these funds cannot be withdrawn, as has been the case at firms such as Pimco and Franklin Templeton, when markets or performance suffers.
In a conference call with investors on Thursday, Mr. Schwarzman, who never misses the opportunity to promote his company’s stock, was perhaps the most vocal he has ever been in declaring that Wall Street was not valuing Blackstone correctly.
“We remain highly profitable with strong growth and limited downside,” he said. “Right now you are getting Blackstone on sale.”
Mr. Schwarzman said that according to the company’s conservative assumptions, Blackstone stock should be trading between $100 and $125 a share as opposed to the current level of around $25.
Then, in a tone that was almost bitter, he said that if investors preferred a 2 percent return on treasuries compared with the 20 percent annual share price return that he expects Blackstone to deliver — well, they should go right ahead.
“I myself will not be selling my BX,” Mr. Schwarzman said, referring to the company’s stock ticker.
Nor should he, many analysts say. “Over the longer-term horizon, he is going to be right,” said Glenn Schorr, a longtime financial analyst with Evercore, an investment bank. “I don’t think it is up for debate that the business model is great and that the company will continue to grow. But these alternative managers are super volatile, and they suffer from whims of the market.”
The company’s fund-raising skills aside, the quarter did reveal quite starkly how a tough stock market environment can hurt immediate term profits.
The economic net income of the company’s two profit-driving machines sank — 77 percent for private equity and 72 percent for real estate. Smaller businesses also experienced measurable declines: Hedge funds fell 36 percent and distressed bonds dropped 87 percent.
The firm’s credit business, a fast-growing operation just a few years ago, was hit particularly hard by the turmoil in the junk bond markets.
On the call, Mr. Schwarzman was pressed by an analyst who asked why he did not authorize Blackstone to start buying back its own stock if he was so convinced that the company was undervalued.
“We get asked about stock buybacks a lot,” Mr. Schwarzman said. “But I like cash. And if we buy stock, we leverage ourselves up. There is nothing wrong with buying stock at this price — but we don’t want to compromise the growth of one of the greatest companies in the world.”
VIA
Blackstone Group LP’s Tom Hill said governments should use fiscal policy to lift economic growth and inflation, joining a growing chorus of investors who are calling for more spending.
"The problem is demand, is spending,” Hill, the firm’s vice chairman, said in an interview on Bloomberg TV Tuesday. “We don’t have enough growth around the world and I think with fiscal QE you could actually get more demand.”
Investors including Bridgewater Associates’ Ray Dalio and Janus Capital Group Inc.’s Bill Gross have said that central banks’ quantitative easing will need to be supplemented by some form of spending stimulus. Gross said last month that the next step may be so-called helicopter money, an idea conceived by the late economist Milton Friedman.
"What I’d like to do is change the name because it’s a buzz word, helicopter money,” said Hill, who’s also chief executive of Blackstone Alternative Asset Management. “Why don’t we call it fiscal QE. So what we’ve got to do is now start to to get the fiscal element in the equation.”
In the years following the global financial crisis, the world’s leading economies have found relief through aggressive monetary policy. But with interest rates slashed to historic lows and central bank balance sheets significantly larger as a percent of GDP than they were before the financial crisis, policymakers will need alternatives to interest rate cuts and conventional quantitative easing when the next recession comes along. U.S. central bankers have cut real interest rates between four and five percentage points during previous recessions, but that would be a difficult feat to pull off in today’s world, with a fed funds rate between 0.25 percent and 0.5 percent.
One novel idea is what Credit Suisse analysts are calling fiscal QE, a not-entirely-literal catchphrase to describe expansionary fiscal policy in which central banks play an important role. Credit Suisse has identified several potential flavors of such, ranging from the very likely (coordinated monetary and fiscal policy) to the very difficult, including “helicopter money” policies, in which central banks either buy government bonds with very long maturities to finance government spending or lend to commercial banks at negative rates with a mandate that the banks then lend to consumers and corporations interest-free.
The most feasible form of fiscal QE would seem to be a process through which central bankers team up with policymakers outside their usual monetary policy stomping grounds to facilitate infrastructure spending. Public financial institutions, for example, could issue bonds to fund projects in areas where key infrastructure is sorely lacking. Central banks would buy those bonds and, barring any default, effectively fund stimulus without adding to government debt.
But there’s the rub: The strategy will only work if it is used to finance profitable infrastructure projects for which the bonds are not at risk of default. Because if they do, central bankers will find themselves will yet another thing to worry about when it comes to the quality of their own balance sheets. “If defaults are large enough, they might start to undermine the central bank’s capital position,” caution analysts with Credit Suisse’s Global Markets team.
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