Blackstone Group LP President Tony James said the “good times” are just starting for private-equity firms because the U.S. economic recovery is still in its early stages, Europe has stabilized and China is rebounding.
“I don’t see the good times coming to an end for quite a while, absent some global shock,” James said in an interview airing today with Bloomberg Television’s Erik Schatzker at the Clinton Global Initiative in New York. “I’m not sure the stock market doesn’t have a long way to run still, and the economy certainly still has a long way to run.”
Profit at New York-based Blackstone more than tripled in the second quarter from a year earlier as the firm, led by James and Chief Executive Officer Stephen Schwarzman, took advantage of rising stock markets to sell holdings and take portfolio companies public. Now is a better time to sell than to buy as interest rates kept low by the U.S. Federal Reserve allow buyers to finance acquisitions at high prices, Schwarzman said at the Sept. 24 Bloomberg Markets 50 Summit in New York.
Private-equity firms depend on both selling and buying companies to make money for investors, who expect to earn their money back with a return five to six years after it’s put into a deal. Bill Conway, Carlyle Group LP’s co-chief executive officer, said on Aug. 7 that the investment environment has grown more challenging, sending shares of Washington-based Carlyle down 1.2 percent.
Even in a competitive climate, Carlyle has raised more than $10 billion for its newest buyout fund, Carlyle Partners VI, exceeding its target.
James’s comments were echoed today by Alex Navab, co-head of private equity for the Americas at KKR & Co. (KKR), who said the U.S. economy will continue to grow over the next three to four years. The U.S. private sector is growing at a healthy pace despite obstacles such as the federal debt and lack of action in Congress.
“Our view is that the private sector has grown three-plus percent and what’s really been a drag to GDP has been the government issues,” Navab said at the Dow Jones Private Equity Analyst Conference in New York. “We think the economy has further to go, through 2016 or 2017. Today is actually a good time to be investing, particularly in a recovery thesis in the U.S.”
Higher interest rates would create “turmoil,” giving Blackstone (BX) and its private-equity peers opportunities to buy assets at low prices, James said in the interview at the Clinton Global Initiative. The benchmark 10-year U.S. Treasury yield rose to 2.64 percent as of yesterday from as low as 1.63 percent in early May, before the Fed began stoking speculation that its asset purchases may be nearing an end.
Blackstone has shifted its focus for new deals to Europe and Asia from the U.S., said James, as Europe stabilizes and China finds its economic footing.
Deal making in the U.S. has slowed. The number of private-equity transactions announced this year through yesterday dropped 16 percent compared to the same period last year, according to data compiled by Bloomberg.
“There’s just not much out there to buy,” James said. “There aren’t many corporate sellers -- why that is, we can speculate -- but there just aren’t.”
James said he’s disturbed that markets haven’t reacted more negatively to the impending breach of the U.S. debt ceiling. Investor “complacency” allows Congress and President Barack Obama to delay deciding whether to raise the ceiling until the last minute, he said.
“That’s one of the most dangerous things about this cycle,” James said. “If you can push it to the limit, there’s a high possibility of miscalculation.”
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