Blackstone president predicts end of deal drought as US inflation pain fades

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The president of Blackstone, the world’s largest alternative asset manager, has predicted that the pain of inflation has peaked and that a year-long deal drought might soon come to an end.

Jonathan Gray said he was confident that markets had absorbed the “shock” of higher interest rates, signalling a possible return of deal activity now that US inflation has fallen sharply in recent months.

“Markets will normalise and transaction activity will pick back up,” he told the Financial Times. “It’s possible with the economy slowing you could have another pullback in markets, but we have made it through the inflation shock and most of the way through the interest rate shock.”

“I feel better about the way markets look today than they did 12 months ago,” he added.

Financial conditions have finally started to ease after months of flagging activity, which has forced firms across the sector to cut jobs.

US inflation has fallen to 3 per cent and jobs growth slowed more than expected in June, in a sign the Federal Reserve’s aggressive interest rate rises are beginning to cool the labour market. The benchmark S&P 500 index is up 13.6 per cent this year.

Gray’s comments come as Blackstone’s assets under management exceeded $1tn for the first time in second-quarter earnings results released on Thursday.

The group also generated $1.2bn in distributable earnings, a proxy analysts prefer as a gauge for the firm’s cash flows, slightly beating consensus expectations.

However, that was down nearly 40 per cent on the same period last year, as Blackstone sold fewer of its investments for a profit amid volatile financial conditions.

When asked about the significance of Blackstone crossing $1tn in assets, Gray called it “an important milestone” and “a marker” on investors’ push into private markets.

“We believe the potential for alternatives is far greater than most people realise,” he said.

Founded in 1985 by chief executive Stephen Schwarzman and investment banker Peter Peterson with just $400,000 of capital, Blackstone has transformed in recent decades from a small dealmaking outfit with a handful of partners into a mainstream financial institution.

Since listing on the New York Stock Exchange 15 years ago, Blackstone’s assets under management have risen more than tenfold and its market capitalisation has soared to more than $130bn, larger than investment bank Goldman Sachs.

Its nearly 5,000 employees manage a portfolio of hundreds of companies that generated a combined $200bn in annual revenues last year, according to estimates from Morgan Stanley.

Under Schwarzman’s watch, Blackstone was the first large buyout group to diversify into investment areas such as real estate, now its single largest business, and into managing hedge fund and credit-oriented investments.

“We’ve established an unparalleled global platform of leading business lines, offering over 70 distinct investment strategies,” Schwarzman told analysts during a conference call on Thursday.

In recent years, it has attracted hundreds of billions of dollars in additional assets after it created novel real estate and lending vehicles designed for wealthy individuals and other investors. Blackstone has also begun to manage the debt portfolios for large insurance companies including AIG and Allstate.

Blackstone’s target market has expanded beyond large investors such as sovereign wealth funds, pensions and endowments towards hundreds of thousands of individual investors and a growing number of financial institutions seeking exposure to unlisted investments.

Gray is bullish about continuing the firm’s march.

“I don’t necessarily subscribe to the fact that as you get to a certain size your growth has to decline,” he said.

Blackstone shares, which have risen more than 40 per cent since the beginning of the year, were down about 1 per cent in morning trading in New York on Thursday.