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Blackstone eyes healthcare, energy in high-priced market

  • Blackstone deploys nearly $12 bln, more than half in PE
  • Realizations surpass $16.1 bln in Q1
  • President James says firm optimistic on U.S. economy

Blackstone Group bought a lot of assets in the first quarter, but it sold more.

The firm realized more than $16.1 billion across its entire platform in the quarter, a record for the firm, an April 20 earnings report shows. Blackstone’s first-quarter exit activity yielded the firm $1.2 billion of performance-related fees across its private equity, real estate, credit and hedge fund platforms.

Despite the selloff, assets under management grew to $368.2 billion, also a record for Blackstone.

“During the quarter we invested nearly $12 billion in new deals, the second highest quarter ever,” President and Chief Operating Officer Hamilton James said.

James added that more than half the total was deployed by its PE business. “We have put $87 billion of capital in the ground over the last three years, and these, of course, are the seeds for our future gains.”

The firm also had $94.3 billion of dry powder at the end of Q1, up 6 percent increase from a year earlier. More than half Blackstone’s available investment capital belongs to its PE funds, and the firm has raised 75 percent of its dry powder since 2015.

High prices

Blackstone’s recent investment activity coincided with a period in which prices for new assets soared. Several consulting firms, including Bain & Co, Cambridge Associates and TorreyCove Capital Partners, in recent months published reports indicating that prices on new assets will likely remain high for the next 12 to 18 months.

“We’d love to put money out in the 2008s of the world, but we have to buy what people are selling,” James said. The firm has made an effort to deploy capital in niche market segments. James cited Blackstone’s acquisitions of companies in healthcare and energy as an example. “Where we can do that, we can offset market overvaluation.”

In January, Blackstone Energy Partners and Sanchez Energy acquired 318,000 acres of Texan oil-and-gas lands from Anadarko Petroleum for $2.3 billion. In mid-April, the firm said it had agreed to acquire EagleClaw Midstream Ventures from EnCap Investments’ venture capital arm, EnCap Flatrock Midstream.

“Access to capital for many of those companies is constrained, and that’s an area where we think things aren’t overvalued,” James said.

One of the primary drivers of rising deal prices has been M&A activity in the tech sector, a TorreyCove presentation shows. Blackstone’s acquired a handful of tech or tech-enabled companies in recent months, including Cloudreach, De Nora and Aon plc’s benefits and human resources platform.

Despite the firm’s recent activity, Blackstone remains “wary” of the pricing of tech-related companies in light of how much private equity capital has been raised to pursue technology assets.

“It’s fairly worrisome, the size of some of these capital pools,” James said. While Blackstone continues to invest in the sector, “we’re watching the amount of capital with a wary eye.”

Despite those concerns, the overall market shows no signs of slowing, James said.

Blackstone is generally optimistic about U.S., European and Asian economies, he said. While geopolitical risks are top of mind for many, namely as tensions on the Korean Peninsula and the Middle East escalate, “I’m not saying we’re calling a peak here,” James said.

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Tony James, president of Blackstone, arrives at the Clinton Global Initiative 2014 in New York on Sept. 23, 2014. CGI was created by former U.S. President Bill Clinton in 2005 to gather global leaders to discuss solutions to the world’s problems. Photo courtesy Reuters/Shannon Stapleton