Blackstone says portfolio performing well

The Blackstone Group’s private equity portfolio is performing well, with 80% of the companies in the portfolio expected to post flat or higher 2008 earnings, CEO Stephen Schwarzman said last week.

Schwarzman also told investors at a Merrill Lynch conference that 70% of the portfolio was non-cyclical, which are companies that are less exposed to the economy’s ups and downs.

“Many people who look at our firm assume we’re a random sample of the S&P,” he said. “I don’t believe that’s true.”

Blackstone a week ago reported a third-quarter loss of $509 million and said it had cut the value of a number of the companies in its portfolio as equity markets tumbled.

Schwarzman, whose speech was aired on a webcast, said that for 80% of the companies in the private equity portfolio, estimated 2008 EBITDA—earnings before interest, tax, depreciation and amortization—is at or above 2007 levels.

Carrying values of the portfolio companies were reduced by 7% in the third quarter, while its real estate investments were reduced by 10%, he said.

Blackstone’s balance sheet is “built to withstand the cycle,” and the company is in an extremely strong financial position, he said.

He said that despite the lack of leverage available, now was a good time to invest, pointing to a previous Blackstone fund invested in the 1990-1991 period that generated 19% net annual returns.

“If you look at the last recession, there were times in the 1990-91 period where it wasn’t much fun to be in the private equity business in terms of one’s existing portfolio. But at the end of the day, this fund generated 19% returns,” he said.

Schwarzman added that the “right time for investors to be investing with us, to make the highest returns, happens to be the period right now.”

He said Blackstone’s credit business saw big investment opportunities. He expects stressed and distressed investment opportunities to emerge over the next 12 to 18 months.

Blackstone has $13 billion across all its funds available to invest in real estate, he said. The company has been patient in not investing much over the last 18 months because it believes a lot of stressed and distressed sellers have yet to emerge, he added.

In a slide at the end of Schwarzman’s presentation, Blackstone said it saw new opportunities in Asia, cleantech, U.S. and European infrastructure, mortgages and real estate. —Megan Davies, Reuters