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 Tony James, the president and COO of private equity giant the Blackstone Group LP, spoke at the Lehman Brothers Financial Services conference Tuesday afternoon, touching on such topics as the credit crunch, leveraged buyouts and where his firms is seeing its biggest opportunities.
Although the conventional wisdom says that the current environment
isn't a strong one for private equity firms, James says that "we think
this year and the next two years are going to be fantastic times to put
money to work, so much so that we've raised our return hurdles
significantly. ... We're seeing more opportunities than we can fund."
James said the firm is high on LBO debt. "Leveraged loans look very attractive to us. These are companies we think will pay back the lenders in full, and we've been aggressively buying these," he said. "We've bought about $12 billion in loans and typically pay 80 cents [on the dollar] for the loans. The only thing I'm sorry about is that we've pretty much worked though the leveraged loan backlog, so there's not much left to pick up." Hedge funds have also been a bright spot for Blackstone as James is able to boast of 30% growth for the firms hedge fund at a time when many are going under. In spite of tight debt financing, James said that Blackstone has made commitments to 27 new deals since the credit crunch began in July 2007. "We have no control over the economic environment, so rather than trying to divine what the environment is going to be like we're trying to decouple results from market conditions. We're investing in companies where we can bring the value." James continued, citing Blackstone's LBO of Dutch media company Nielsen Co. as an example of a company where value can be added independent of the market conditions. "What we do like is rescue real estate opportunities," he added. "We're finding plenty of debt securities opportunities in the market. We're still early in the cycle for distressed [assets], and we think that we'll see a lot more of that. We're setting up a distressed real estate fund to take advantage of it." Looking into his crystal ball, James said that "if I had to guess, and it is a guess, things will look pretty bad into 2009 before you'll start to see some improvement." He expects some of the worst trouble will be among regional banks. "I do think we're going to see massive defaults among the regional banks. These banks don't have the capital cushions that they need." And while he expects to see some slight regulatory changes that allow private equity firms to move further into buying stakes in bank, he doesn't think that the current 20% ownership cap will be lifted. - George White See Webcast of Tony James' speech See Tony James interviewed for TheDeal.com Categories Deal Video
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