Blackstone Group LP co-founder Steve Schwarzman said his firm sold most long-dated fixed-rate investments and moved to floating-rate investments as interest rates start to rise.
“We exited almost all of our long-duration fixed-rate investments probably four or five months ago,” Schwarzman said at Goldman Sachs Group Inc.’s financial services conference today in New York. “It’s probably a better bet that interest rates will be going up rather than down and we don’t want to give back profits from loss of principal.”
Anticipation of the Federal Reserve deciding to taper its monthly bond purchases has heightened since May, when Chairman Ben S. Bernanke first indicated policy makers could start reducing the stimulus if the job market continues to improve. Slowing stimulus may lead to higher interest rates, which lowers the value of interest-paying securities whose rate remains fixed at the lower percentage.
Schwarzman, 66, said he doesn’t think institutional investors are allocating more money to fixed income, though their commitments to alternatives to stocks and bonds are increasing. The Fed’s stimulus has boosted equity markets, thereby reducing the percentage of an investor’s holdings dedicated to alternatives and leading those with allocation targets to commit more money to private equity, real estate and hedge funds.
“Thank you, Ben Bernanke,” Schwarzman said. “I saw him last Thursday and I thanked him. The opportunity for us to be able to attract funds is very, very high.”