Blackstone, the LBO boutique founded by legendary Lehman partners Pete Peterson and Stephen Schwarzman, was the flagship IPO of the credit bubble era in 2007. My RMs at Morgan Stanley Dubai told me that some of the biggest sovereign wealth fund investors in the Gulf/China were bidding for the deal. I declined, as I saw macro storm clouds that would seal the fate of Wall Street in 2008. While I was not invited to the dinner MS/Blackstone’s chairman hosted for the leading CIOs in the Emirates, I also did not suffer the pain of seeing the IPO tank from 32 to 5 in the depths of the global recession.
Mark Twain was not a credit-cycle geek like moi, but I totally agree with him that while history does not repeat, it surely rhymes. Blackstone rose 5x from 30 to 152 in the five years that preceded the Powell Fed’s belated pivot to tight money in November 2021. When Wall Street grasped the macro significance of Powell’s inflation mia culpa, the shares of the world’s largest alternative investment manager with $845bn AUM was a no-brainer short since spike in bond yields would hit its vast real estate, private equity and shadow banking empires in unison. Blackstone (BX) has plunged from 152 last November to 89 now.
“The IPO window has snapped shut, borrowing costs have spiked and private equity funds cannot cash out of even profitable companies”
The stock/bond market meltdown has crippled Wall Street deal-making, the IPO window has snapped shut, borrowing costs have spiked and private equity funds cannot cash out of even profitable companies. Blackstone’s net income plummeted to $2.3m in the September 2022 quarter from $1.4bn a year earlier. This is mother of all ouch moments for BX and I do not want to juggle multiple macro falling knives by covering the BX short and going long the shares of a fund manager I view as the Zeus of the alt-invest Mount Olympus.
Another reason to remain short BX is that bank financing disappears for PE deals at a time of imminent recession. True, BX has $182bn in dry powder, but the state of the leveraged loan/high yield and real estate markets tells me that there is no quickie U-turn in net income on the horizon. Under its brilliant alum president John Grey, Blackstone also built the world’s most profitable global property investing franchise on Wall Street in the past decade. I still remember the memorable rags to riches story of Jon’s Hilton Hotel LBO and subsequent floatation, as well as the IPO of Invitation Homes after Blackstone became America’s largest residential landlord amid the 2008 housing crash.
BX’s $70bn retail Blackstone Real Estate Income Trust (BREIT) will go into redemption. This will hit BX’s asset/fee growth and thus valuation metrics at a time when the housing market and private debt are both leprosy in a US economy where inflation still rages and Uncle Jay is an uber hawk. After all, BREIT alone generated $1bn in fees in the first six months of 2022 and this honey pot will not gush cash on this scale in 2023. My call? Remain short BX for a 70 target. https://www.linkedin.com/feed/update/urn:li:activity:6994344556896874496/
