Blackstone eyes US deals amid European ‘headwinds’

The Blackstone Group is increasingly focusing on US investment opportunities following a year in which the firm’s private equity business invested significantly more in the US than Europe.

“It seems like [Europe] has stabilised right now, but it doesn’t seem to me that a lot of the structural problems have been addressed,” Blackstone president Tony James said during an earnings call Thursday. “Our portfolio companies there are definitely feeling the economic headwinds, so it’s not the kind of environment you’re going to race into and start loading up the boat in terms of buying things.”

The unemployment rate in certain European countries, James added, has reached the “mid 20s, which is new ground”.

In the US, Blackstone will continue focusing on investments in the energy and healthcare sectors, both healthcare services and healthcare-related products.

“There are a lot of changes going on in healthcare and I think with the Affordable Care Act coming in there will be some significant winners and losers, and that sort of change opens opportunity for us,” James said.

Still, James qualified his statements by adding that “hot debt markets” have driven near record high prices for US companies, a factor that has impacted the type of businesses the firm is pursuing.

“We’re focusing a fair amount of our US investing on growth situations, where they need more equity capital to grow and we can earn great returns by either consolidating an industry or driving organic growth,” he said.

Blackstone’s earnings call came following the firm’s strongest overall year since going public, with private equity revenues rising 43 percent year-over-year to $838 million, due in large part to increases in performance fees and investment income.

“Despite the slow economy, most of our companies made steady progress, growing EBITDA and paying down debt,” James said.

The value of Blackstone’s private equity portfolio rose 14 percent during 2012, while the firm returned $3.5 billion to investors at an average return multiple of 2.1x.

Blackstone’s credit business also had a particularly strong year, with revenues and earnings at GSO Capital Partners growing 97 percent and 130 percent respectively. GSO’s mezzanine funds generated net returns of 26 percent, while its rescue financing vehicles returned 16 percent.

On the whole, Blackstone had a strong year on the fundraising front, raising a total of $34 billion, and growing its total assets under management to a record $210 billion, up 26 percent year-over-year.

One significant change James mentioned was a reduction in the amount of club deals Blackstone has participated in recently.

“We would do club deals again, [but] LPs are much more interested today in co-invest,” he said. “Buyout sponsors in general would rather give their LPs something they want than give a competitor a piece of a deal. There’s much more appetite on the part of LPs, so there’s much more desire on the part of GPs too – if they have excess equity – rather than call a few competing firms to call their LPs and see if they can cobble it together.”