Blackstone Group (NYSE:BX) is one of the preeminent alternative asset companies in the world. They have some $300 billion AUM and have created a powerhouse in the space. Blackstone is split into four lines of business: Private Equity, Credit, Real Estate, and Hedge Fund Allocation.
Size and Performance
Blackstone's size and flexibility allow them to be the first call, and sometimes the only call, on big complex deals. This first call advantage gives Blackstone a leg up on the competition. It also allows the firm to market themselves to limited partners as a unique platform they want access to. Blackstone does a great job of leveraging each piece of their business to help every other piece.
Their Hedge Fund Allocation business (fund of funds, mostly) allows them to both see new strategies early and get favorable terms for their clients when investing in the new funds. They can then leverage those relationships as the new hedge funds become successful. Hedge funds find it highly desirable to get the Blackstone seal of approval so they win both ways.
Blackstone's size and their diverse fund offerings allow limited partners to use them as a one-stop shop for their alternative assets portfolios. A high percentage of their clients are invested in more than one fund. This allows Blackstone to anticipate limited partners' future investment desires and get there before the competition.
Their real estate portfolio is large ($94 billion of investor capital) and diverse from residential to office towers to industrial to malls in China. Even more amazing is that the deployment of $65 billion of it has happened since the credit crisis in 2008/2009. This underscores one of the key advantages of Blackstone's structure. They can quickly move into and dominate a space when the price is right and they are the only buyers. Recently, they've been talking about taking a look at assets in the oil and gas sector as this area is looking ripe for some opportune purchases.
Blackstone's earnings were less in 2015 than 2014; however, they were able to attract $94 billion in investments from clients, a record for the company. Clearly, limited partners believe that there are opportunities in this market and Blackstone will be able to exploit them.
Currently, Blackstone has $37 billion in dry powder to invest in the Private Equity platform. This allows the firm to be very opportunistic in future purchases.
Blackstone was recently able to unload their luxury hotel portfolio to Anbang Insurance Company of China only a few months after acquiring it in December of last year. Blackstone paid $4 billion for the portfolio and the sell price was reportedly $6.5 billion. Not bad for a few months.
The IPO market hasn't been great thus far in 2016. Perhaps with the sharp rise in the market over the last few weeks it will get better.
As with most businesses, there are some headwinds.
The funding market could dry up. It looks like the Fed is on hold for now, but banks may get more aggressive with their lending terms.
The IPO market could stay in hibernation for an extended period of time causing Blackstone to keep positions longer than they'd like.
Some of the limited partners could unexpectedly pull there money out. Blackstone has lock-ins that protect them from sudden redemptions.
With a forward P/E of 9.9, according to Morningstar (Yahoo has the forward P/E as 8.47), I believe Blackstone's current share price offers investors an excellent opportunity to invest alongside some of the best minds in the business at a reasonable price. The stock is trading at about the same level it was at the beginning of the year, and pretty close to where it IPO'd in 2007. Its current yield is 9.75% (though the exact yield has little meaning, since the distribution changes quarterly).
Disclosure: I am/we are long BX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.