Blackstone invests $2.7 bln across strategies in floundering energy sector

  • Energy helps drive earnings in Blackstone’s credit business
  • Firm has invested in energy over past year
  • Overlevered energy companies need capital to complete projects

Blackstone Group has been deploying capital in the struggling energy sector and the bet is paying off, with gains in energy investments helping drive performance in the firm’s $89.3 billion credit portfolio.

Blackstone has invested capital across credit and private equity into energy over the past 12 months, President Tony James said on the firm’s third-quarter-earnings call Oct. 27. Blackstone announced or closed on 10 energy-related deals for $2.7 billion in equity investments this year, Chief Executive Steve Schwarzman said.

“We fundamentally believe that where energy prices are now … [they’re] below where they’re going to be at some point and below their equilibrium level,” James said.

Oil prices have gradually climbed from their lows earlier this year, when the price per barrel of WTI Crude dropped to $26.21 on Feb. 11. WTI Crude was trading at $49.51 per barrel Thursday afternoon, according to an oil-pricing chart from Bloomberg.

Blackstone found opportunities with many companies that needed financial support to move through projects like building pipelines or drilling into oil and gas properties, James said.

“They need capital because they got overlevered,” he said. “It’s kind of an interesting juncture of companies needing capital and a good time to invest.”

Those investments could come in the form of direct lending, or buying assets, he said. “A lot of companies in particular are selling off smaller projects to concentrate resources on bigger projects … at what we would consider bargain prices,” James said.

Blackstone’s credit business in Q3 generated gross returns of 6.2 percent in performing credit and 6.4 percent in distressed strategies, the firm said in its earnings report. The credit business drew in $3.2 billion for a mezzanine fund, bringing total capital raised for the vehicle to $6.5 billion. The firm expects the fund to reach its hard cap in Q4, Blackstone said.

The credit group also drew in $509 million for a European CLO and $907 million in separately managed accounts and commingled funds.

In PE, meanwhile, Blackstone pulled in $2.1 billion for its Strategic Partners secondary fund, $812 million for its tactical opportunities vehicle and $257 million for its Core Private Equity program.

Action Item: Blackstone earnings:

Stephen A. Schwarzman, chairman and chief executive of Blackstone Group, speaks during an interview with Maria Bartiromo on her Fox Business Network show, “Opening Bell with Maria Bartiromo,” in New York on February 27, 2014. Photo courtesy Reuters/Brendan McDermid