Blackstone’s James big on European direct lending

President of Blackstone, Tony James, says he sees less competition in Europe compared to the US.

Tony James, president of Blackstone, said that he prefers the direct lending market in Europe right now compared to the US, despite pricing concerns, during a call on the firm’s second quarter results.

Asked about pricing in Europe, James said: “Europe is in some ways the most difficult market in terms of pricing for private equities but for direct lending, we feel very good.” He added: “We are finding the returns to be excellent.”

James pointed out that Blackstone is also the biggest non-bank buyer of loans in Europe, through another business, allowing the firm a view on both the buy and sell side.

There is more of a vacuum in lending in Europe compared to the US, he went on to explain, when comparing markets. “The European banks are smaller and more capital constrained and don’t have the [same] ability to originate and distribute,” James said.

He continued that he preferred direct lending in Europe as competition in the US is stiffer.

“In the US you compete much more with the public markets and securitisations and [] and its just a much deeper capital markets.”

Furthermore, James said Blackstone’s view was that in terms of the economic cycle, Europe had just bottomed out and there was a “long runway ahead of it, whereas the US is in the mid-part of that”.

The New York-headquartered asset manager has raised about €2.9 billion of capital for its European Direct Lending vehicle, James said. Capital will be used for senior lending but the firm will also have the remit to provide capital up and down the capital structure. Reflecting the firm’s ability to write relatively large tickets compared to other direct lenders, James said they could provide loans as large as €250 million.

Assets under management in the credit segment of Blackstone’s business, overseen by subsidiary GSO Capital, reached $81.3 billion, driven by new product launches, the firm reported in its second quarter results. Total assets under management are at $333 billion, up 19 percent year-on-year.

In credit, the firm has created two new products this year in response to market opportunities: European Direct Lending and Energy Select Investments will come out of the box with over $7 billion of new capital, James said.

However, economic net income was down overall at Blackstone: 62 percent year-on-year since the second quarter of 2014, from $1.3 billion to $508.4 million. Falls in revenue have been significantly driven by movements in the trading prices of stocks Blackstone’s holds in real estate portfolio companies already gone public. The sector was particularly weak in the last quarter, James said.