Two-thirds of Blackstone deals target emerging markets

The New York-based buyout shop has invested $1.3 billion of fresh equity in deals during the first quarter of 2010. It comes as the firm’s president Tony James insists ‘fundraising has come alive again’.

The Blackstone Group pumped $1.3 billion of new equity into private equity deals in the first three months of this year – with roughly two-thirds of it targeting emerging markets.

The New York-based buyout firm said around 60 percent of the money it had deployed in the first quarter was targeted at Asia and other emerging markets, where at least four new deals had taken place.

Earlier this month, Blackstone said it would invest INR 2.25 billion (€37.8 million; $50.5 million) in Jagran Media Network, which will hold a majority stake in Jagran Prakashan (JPL), an Indian media and communications group. President and chief operating officer Tony James added on an earnings call today that “emerging markets [were] playing a very important part of our current activity”.

Blackstone has also completed or is in the process of exiting from 12 investments made through its private equity funds, with James saying $3.7 billion of equity had been returned to LPs, at a 2.7x multiple to the original purchase price and a 1.5x multiple to the mark-to-market value.

The firm said its private equity and real estate funds had both seen a dramatic swing in values since the first quarter of 2009, with Blackstone’s private equity portfolio increasing in value by 16 percent in the first three months of 2010 and real estate rising by 12 percent.

James also noted that Blackstone’s placement arm, Park Hill, had also seen its revenues triple to $16 million in the first quarter, with the COO telling journalists on the call: “Fundraising has come alive again.”

The fundraising industry was moving from essentially “dead to wounded” and was now on the way to “healthy”, James added. “We are in the middle part of the cycle and I think it’s certainly much better than a year ago. We are seeing investors committing to alternatives and we are seeing them increase generally their allocations to alternatives.”

LPs though were pressing firms such as Blackstone on terms and fees, not least deal fees. James said the industry had already shifted from a position where sponsors retained all deal fees, to a position where they were now 80-20 in favour of the LPs. He said that would “probably get worse over time”, adding that investors were calling for 100 percent of all deal fees earned.

During a later call with analysts, Blackstone chief executive officer Stephen Schwarzman said the firm would remain a major client of Goldman Sachs and never had reason to question the investment bank's behaviour on any deal it had worked on with them.

The comments follow accusations by the US Securities and Exchange Commission that Goldman defrauded investors in the structuring and marketing of debt instruments secured against subprime mortgages. “We've been working with Goldman Sachs since Blackstone was founded almost 25 years ago and I've been personally working with them for over 40 years, and we've never had any circumstance where there's been any question about their ethical character or their behavior on any transaction we were involved with,” Schwarzman is quoted as saying.