- Toughest quarter for credit strategies since 2011
- President Tony James cites market turmoil
- Energy sector facing defaults
Blackstone Group blamed dislocations in high-yield debt for a quarterly loss in all three of its major credit strategies for the first time since 2011, but said market conditions appear to be leveling off.
Overall, the largest private equity firm by assets under management said its business remained robust despite challenging and volatile markets, including steep drops in public equities in 2015 and 2016.
Blackstone President Tony James said the sharp drop in high-yield debt markets late last year doesn’t appear to be a harbinger of a recession.
“At this point, credit markets are stabilizing,” James said on a conference call with reporters. “[There will] be some fantastic investment opportunities.”
Blackstone said its credit unit deployed a record $2.6 billion during the fourth quarter in the face of attractive investment opportunities in the energy sector and European direct lending.
But taking its lumps in the credit market, Blackstone said gross composite returns for the fourth quarter dropped 7.7 percent in its mezzanine unit, 11.2 percent for rescue lending and 5.7 percent for hedge fund strategies.
James said it’s been about five years since Blackstone last posted quarterly losses on all three credit strategies. Credit strategies were negatively impacted in the quarter by energy commodity pricing, turbulence in credit markets, and technical pressure caused by year-end selling, Blackstone said in its prepared statements.
James said turmoil in high-yield markets wasn’t driven by a surge in defaults, but instead was caused by a rush to sell, a flight to quality and a lack of liquidity — all temporary conditions.
However, debt tied to the downdraft in energy prices is facing different dynamics, he said.
“Companies are running out of capital and that’s a sector where you’ll have some significant defaults,” he said. He said Blackstone’s energy investments have “taken their lumps here and there.”
Looking ahead, James said strategic buyers remain strong and that Blackstone is planning many realizations by selling portfolio companies this year.
On the fundraising front, Blackstone said it raised $94 billion in all of 2015 and closed its flagship buyout fund, Blackstone Capital Partners VII, with $17.5 billion in commitments.
During the fourth quarter, its private equity business pulled in $5.2 billion. That total included $1.1 billion for its Tactical Opportunities platform, $852 million for Blackstone Total Alternative Solutions and $383 million for Blackstone Strategic Partners.
The firm’s private equity portfolio generated about $3.4 billion in realizations during the quarter, including the sale of Avintiv and Freescale from Blackstone Capital Partners V and the sale of SunGard from Blackstone Capital Partners IV.
Blackstone ended the year with $80 billion in dry powder, including $37 billion in its private equity funds and $24 billion in its real estate arms.
The firm ended the year with $336.4 billion in assets under management, up 16 percent. Looking ahead, the firm expects AUM growth of at least 8 percent to 10 percent.
Action Item: See Blackstone Q4 results here: http://bit.ly/1PDfcJQ
Photo: Tony James, President of the Blackstone Group, speaks during the Reuters Investment Banking Summit in New York, November 14, 2006. REUTERS/Keith Bedford