Schwarzman: Blackstone plays ‘vital role’ in society

Blackstone co-founder and chief executive Stephen Schwarzman used the firm’s third-quarter earnings call as an opportunity to showcase the positive impacts the firm’s capital has had for both limited partners and the businesses it backs. This comes amid negative characterisations of the private equity industry both in the media and in political discourse.

In his opening remarks, Schwarzman spoke of the “vital role” Blackstone plays in society, delivering strong returns, particularly in today’s low-interest rate environment, to enable public and corporate sector employees “to retire with sufficient savings and secure pensions”, as well as boosting school endowments to support students’ education and helping others achieve their financial goals.

“We achieve these results for our LPs by improving the companies and assets in our portfolio and making them better places to work,” he said, adding that the firm supplies capital and operating expertise to build healthier companies that go on to hire and invest in their businesses.

Schwarzman said the firm’s private equity portfolio companies had added more than 100,000 net jobs during the firm’s ownership over the past 15 years.

“Of over 700 control investments we’ve made during this period across the firm, there has been only one bankruptcy filing” and no liquidations, he added.

In July, Democratic presidential candidate Elizabeth Warren co-wrote a bill called The Stop Wall Street Looting Act of 2019 aiming to, in the US senator’s words, end the “abusive practices by putting private investment funds on the hook for the decisions made by the companies they control, ending looting, empowering workers and investors, and safeguarding the markets from risky corporate debt”.

“Far too often, the private equity firms are like vampires – bleeding the company dry and walking away enriched even as the company succumbs,” Warren wrote in a Medium post.

More recently, new research from Harvard University and the University of Chicago on the effects of private equity on the businesses it owns has been interpreted by various mainstream media outlets as evidence that the industry slashes jobs and leaves workers worse off.

Blackstone’s assets under management hit $554 billion in the third quarter, up 21 percent year-on-year.

Last month, Private Equity International reported that Blackstone had collected $26 billion for Blackstone Capital Partners VIII, its latest flagship private equity fund. It is unclear whether this vehicle has held a final close.

President and chief operating officer Jonathan Gray said the firm’s “four largest flagship funds totaling $67 billion have essentially been raised, with demand beyond the caps we placed on them”.

Blackstone’s secondaries unit, Strategic Partners, had a “standout quarter” with appreciation of 9.6 percent, according to chief financial officer Michael Chae. The $34 billion secondaries business grew 60 percent year-on-year and has generated 14 percent returns annually since inception, as of the end of the third quarter.

Strategic Partners VIII, which closed on $11.1 billion in July, is already more than 40 percent committed.

“There is a structural shortage of capital in secondaries, creating enormous opportunities for deployment,” Gray said.

The unit’s “unique footprint, owning interests in thousands of funds”, and a relatively small number of players at a similar scale in the market, positions it well for larger transactions, Gray said. The firm is also expanding the unit into infrastructure secondaries and impact.

The growth in secondaries is directly related to high single-digit growth in alternatives and growing volumes of sellers looking for liquidity.

Liquidity needs are increasing, with LPs wanting to sell older-vintage funds, or new chief investment officers changing strategy and clearing out “40 fund interests with weighted seven-year vintage”, Gray said.

Pricing and discounts in NAV in secondaries have been stable relative to history. So Strategic Partners has been able to deploy lot of capital into that pricing environment, Chae said.

Blackstone has now launched fundraises for dedicated vehicles in life sciences and growth equity, holding a first close on an unspecified amount for the life sciences vehicle during the quarter. The firm will also be back in market with another Asia private equity fund next year, Gray said.

Blackstone’s private equity dry powder stood at $71.8 billion at the end of the third quarter, almost 48.5 percent of the total $148 billion of dry powder, according to the firm’s earnings presentation.

Blackstone deployed $5.8 billion in private equity capital in the third quarter and committed an additional $2.6 billion. Total capital deployed in the previous 12 months was $27.7 billion.