Blackstone sees opportunities in less-levered private equity transactions

By Jennifer Lanning Drey

Portland, Ore., Nov. 6 - Blackstone Group LP's chief operating officer said the state of the global markets is creating an increasing amount of favorable opportunities to carry out private equity transactions that don't involve high levels of leverage.

"We have seen this before. Prices crash and even with low leverage when those companies recover with the overall economy, we typically earn returns more than double the normal cycle returns," COO Tony James said Thursday during the company's third-quarter earnings conference call.

Blackstone closed on $1.6 billion of new equity investments during the third quarter, which included Weather Channel, AlliedBarton Security Services and an investment in China National BlueStar Chemical Corp. The firm also closed last month on Apria Healthcare Group Inc.

"The best returns for the entire private equity industry have typically been earned in times of turmoil such as the downturns of 1990 to 1992 and 2001 to 2003, and we believe today will be another example of that," James said.

Additionally, as opportunities increase, the competitive landscape in private equity appears to be decreasing, he said. Specifically, James noted that as hedge funds face large redemptions some will be forced to quit while others are likely to become less able to make illiquid mezzanine and private equity investments.

"Some of our competitors are wounded, others have or will disappear. Banks and security firms will need to change dramatically the way they compete as a consequence of new regulatory capital requirements placed on them," he said.

Attractive real estate

James also said Thursday that Blackstone is prepared to invest in what it believes will be an attractive real estate market but is waiting for sellers to further adjust their expectations or be pressured to sell by other circumstances.

"We believe real estate values will come down further, and there will be many distressed sellers forced to liquidate assets as short-maturity debt comes due," he said.

The competitive landscape has also changed among distressed real estate investors as investment banks - formerly some of private equity's most aggressive competitors - have withdrawn from the market or shut down.

Real estate investment trusts are also providing less competition as many face problems with refinancing their near-term debt, he noted.

Blackstone is a New York-based alternative asset manager and provider of financial advisory services.

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