Blackstone sets its gaze on Europe

The Blackstone Group is focusing on Europe this year as prices in the region have fallen to attractive levels and competition has dried up, Tony James, president of the firm, said during earnings calls Thursday.

Blackstone’s investment focus will cut across most of its asset classes, with attractive opportunities in private equity, real estate and credit investments, the firm said during the earnings call.

“Europe is a very interesting opportunity for our business. This coming year [Europe] will be the most active opportunity we’re going to have,” James said during the call announcing Blackstone’s fourth quarter and full-year 2011 earnings.

Credit investments represent a “huge opportunity” in Europe, James said. “In corporate credit, we think this will be a huge year.”

Europe is a very interesting opportunity for our business. This coming year [Europe] will be the most active opportunity we're going to have. Tony James

The firm is moving a senior executive from its GSO Capital credit affiliate to Europe to continue its push for more exposure in the region. GSO has essentially stopped marketing its second mezzanine fund, which was targeting $3 billion but is likely to hit its $4 billion hard-cap in the next few months, according to market sources.

Last year, the firm acquired European leveraged loan manager Harbourmaster Capital for an undisclosed amount.

“The debt markets are shut in Europe. It’s a fantastic time to provide rescue capital,” James said. The firm has also begun raising its second rescue fund, he said.

Blackstone is also optimistic about fundraising this year, with limited partners consolidating their portfolios to include only their most trusted managers. Blackstone has benefitted from this consolidation, attracting large commitments from big institutions, including for innovative, separate account structures like that formed with New Jersey’s state treasury last year, the firm said.

Last year, New Jersey pledged $1.5 billion to Blackstone-managed customised accounts with flexibility to invest in

Steve Schwarzman

various strategies, including credit and energy.

The customised accounts will allow the pension system to “take advantage of opportunities we can tee up and help [it] be more nimble and respond to what are often ephemeral market opportunities that open and close”, James said. The customised relationship “is a seminal product in the industry that will get a lot of followers”, James said.

The firm has raised $6 billion for its seventh real estate fund, which it anticipates will end up bigger than its prior real estate vehicle that closed on $10 billion.

Blackstone reported its full-year 2011 and fourth quarter earnings Thursday, revealing a sharp drop in revenues from $828.4 million in 2010 to $578.8 million last year. The decrease was due to lower carried interest and investment income, the firm said.

Overall, the firm reported a decrease in economic net income – a way of measuring earnings that includes both realised and unrealised gains and losses – from about $1.4 billion in 2010 to $1.38 billion in 2011, driven by slowing in the rate of increase in the carrying value of assets.

In private equity, Blackstone invested about $3.8 billion in 2011, an increase from $1.7 billion in 2010. The firm had about $16.3 billion in uncalled capital as of 31 December, with about $287 million committed to deals that had not yet closed as of 31 December, the firm said.

The firm also invested $2.6 billion in credit strategies and about $6 billion in real estate, for a total output of about $13 billion of LP capital put to work for the full year 2011, the firm reported. That's compared to total investments of about $7.3 billion in 2010.