Why the Blackstone trade idea was a winner
Company took advantage of fabulous IPO market, nosebleed asset valuations to cash out on more deals
I have made no secret of my conviction that Blackstone Group, the world's largest private equity and alt-asset management colossus, was grossly undervalued at 27 in January. I was right. Blackstone shares soared to 31 on Friday as economic net income (realised and unrealised gains) rose to $986 million, more than double the $370 million in 1Q 2016. The investment strategy on Blackstone I reiterated and infinitum in 2017 is now highly profitable in real time.
Blackstone took advantage of a fabulous IPO market and nosebleed asset valuations on Wall Street to cash out on more deals than at any time in its 32-year history. Private equity trade sales alone were $6.2 billion in the first quarter, led by shale oil explorer Kosmos Energy and Internet security firm Optiv.
Real estate is now Blackstone's biggest global business. Its single most profitable deal, the leveraged buyout of Hilton Hotels, chronicled in this column, has been a $10 billion windfall for the firm.
Blackstone finally sold its last 25 per cent stake in Hilton Worldwide Holdings to Chinese conglomerate HNA. I was relieved to read Blackstone slashed its holdings in London office (leprosy!), Sydney and Tokyo residential (overvalued!). Blackstone had made the property killing of a lifetime after Jon Gray bought 50,000 US homes in the post-Lehman housing bust in 2009-10, renovated/rented its portfolio and floated it on Wall Street as the Invitation Homes real estate investment trust IPO.
Blackstone's multiple deal exits now mean $1.23 billion in deal profits, management/performance fees, up from $394 million a year ago. This is amazing, magnifique, mumtaaz, wunderbar! Even though Blackstone is the world's largest owner of commercial property, its real estate sales last quarter were 2.6 times cost Blackstone also took advantage of the collapse of energy assets and post Brexit UK assets in 2016 to make some brilliant acquisitions and has raised $240 billion in institutional capital in the global financial markets, more than KKR, Apollo and Oaktree combined. This is Wall Street's most successful, most profitable alt-asset management money machine.
I had declined Morgan Stanley's offer of dinner with founder Steve Schwarzman when I was the CIO of a royal investment office in Dubai during the June 2007 IPO of Blackstone. I thought the shares were grossly overvalued and refused to bid. The biggest institutional investors and family offices in the GCC invested in the IPO at $32 a share and were skinned alive when the shares plunged to $5 a share.
I not only declined to invest in Blackstone but even wrote a successive column in this newspaper warning my buy side peers in the GCC not to do so, even at the cost of angering my friends at Morgan Stanley, who also gifted the region such dud deals as Depa Interiors, Ren Ren, which lost 90 per cent of their post IPO value. History records that investors would have been infinitely better off investing in my strategy ideas published in Khaleej Times than investing in the IPO's "gifted" to the GCC by Wall Street investment banks and local private equity (shops/Ponzi schemes)! This is not gloating. It is simply cold, hard fact that can be easily verified by investors.
Even though the euro is at 1.07 and French banks rose two per cent in Paris, I am worried about the impact of the latest terror attack on the French election. High voter turn outs can only benefit Marine Le Pen in this historic weekend. A bes le maximum.
The world is mesmerised by the Saudi Aramco IPO hype. I am mesmerised by Oman Oil and Salalah Methanal's pre-IPO placements on the Muscat Stock Exchange. Oman is not a member of the Opec but the sultanate is a pioneer in such key energy technologies as horizontal drilling and has stakes in energy drillers from Budapest to Oslo, Kazhakstan to Houston. When Oman decides to float Petroleum Development, its state-owned oil and gas colossus, I will gladly do cartwheels across the Hajar Mountains (LOL!) to invest in the sultanate's hottest deal since the Galfar IPO, another triple-bagger published in this column in the fateful winter of 2007!
The writer is a global equities strategist and fund manager. He can be contacted at firstname.lastname@example.org.
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