Asia bull

Hamilton “Tony” James is what can only be described as a big gun in global private equity. In the 1990s, as head of DLJ Merchant Banking, he presided over one of the dominant private equity businesses of its time, with loyal personnel across the US, Europe and Asia. In 2002, he joined Blackstone as president and COO to oversee an even bigger empire.

In January of this year, James met with PEI's US editor David Snow in New York, and a significant portion of the conversation evolved around Blackstone's prospects in Asia. James was relaxed, friendly and appeared only mildly nonplussed at the fact that Blackstone's share price was trading nearly 40 percent off its June IPO price. He insisted Blackstone would undauntedly continue to expand through market cycles and investment environments, including its enormous private equity programme, with which he spends the most time. He also argued that the firm was well equipped to continue to put money to work – in North America, Europe and, importantly, Asia – despite the tough conditions in today's market.

“Private equity is a very flexible mode of investing,” he explained. The current private equity fund, Blackstone Capital Partners V, is 75 percent invested. “That won't last us all that long. Last year we put about $1 billion to work in India. China wasn't even up and running, but we committed about $600 million, so on a full-year basis that might be another billion.”

James predicted Asia and other non-Western markets would be home to a larger and larger percentage of Blackstone's overall deal activity. Opportunities in these regions loom especially large now that the West has caught a credit malaise. “Asia hasn't been affected by this [credit crunch] at all,” James said. “And of course it's growing explosively still. And it wouldn't just be China and India. You could include Russia in that and some of the Latin American countries. And there's still robust leverage available in Japan.”

As Blackstone's “power-alleys” have grown in assets under management, James has scaled the operation accordingly. Most recently, his attention has been focused on bringing operating talent in-house to work with the private equity platform's more than 40 different portfolio companies. The Portfolio Management Group currently has 18 senior executives, and its continued growth will “be a function of the size of our portfolio. It definitely plays a much more active role now than it did five years ago at a given portfolio size. We have lean manufacturing experts, pricing experts and other specialists, and they're based in the US, Europe and Asia. That's an area of active hiring for us.”

James predicted that as Blackstone expanded in Asia, it would look for locals to join the more established professionals in the several locations. “We're actively hiring right now in Asia, in particular in our growing operations in India, Hong Kong, Japan and are looking at other markets as well that are more in the emerging markets area.” He said the firm was not currently engaged in “a lot of lateral hiring at experienced levels in the US and Europe – we have a very deep bench there”.

GLOBAL HOMOGENEITY
He also emphasised that Blackstone had one global culture with regard to deal doing. All new deal professionals are encouraged to sit through the three investment committees in order to internalise the house approach. New Blackstone offices around the world must mix new employees with “Blackstone people steeped in our culture – it's not a franchise model. There are microcosms of Blackstone in India and China and wherever else around the world that we are. The work is absolutely interchangeable – the quality of the work, the depth, the analytical rigor, the form of the memos. Everything is exactly the same in Mumbai as it is in New York and London. This is one of the keys to our success over the years and it's one of the things that we focus on perpetuating.”

For James, Blackstone's land grab in Asia is something of a déjà vu, because his old firm DLJ Merchant Banking had offices in India and China, among other non-US locations. “When I was running DLJ's private equity business back in the 1990s, it was the largest in the world,” he recalled. “We had private equity operations in both India and Hong Kong. So to me Asia is established ground. And if anything it's matured a lot and become easier.”

At a time when many Western private equity firms are competing hard for Asian deal flow, James insisted Blackstone was not rushing things. He said the firm would not have entered Asia, no matter how compelling, without first bringing on board local chiefs Akhil Gupta for India and Antony Leung for China. “We're not a firm that says, ‘Oh yeah, we should be in China. Let's go. If we can't get great people let's just get the best that we can find’. ”

Commenting on life as a public company, he said that while the leadership of Blackstone was “well prepared for the technicalities” of a listing, accomplished last June, he was surprised by the volume of the fanfare the listing received, as well as by the steep subsequent decline of Blackstone's share price. “As much press as Blackstone gets, I think we were a little shocked at the amount of press that was triggered by our IPO and all the things that go with that. It seemed to be a daily barrage of multiple articles that surprised even us. We thought [the IPO] would be noteworthy, but not a crescendo for a multi-month period.”

A longer version of our interview with Tony James was published in the February edition of sister publication Private Equity International.