Thursday, February 15, 2024

Forbes PEU Briefing on Juggernaut Blackstone

Forbes Daily Briefing recently focused on Blackstone.  Much of the video sounded like a private equity informercial.  The briefing highlighted Blackstone's international footprint, citing a number of details:

Paris - new 26,000 square foot office

Frankfurt - opened 14,000 square foot office

17 offices around the world, double international headcount in just five years

Toronto -- new office, first in Canada

Singapore - doubling staff

India - owns forty companies and largest real estate operator, top performing Asian market

Globally, private equity investment is in "its infancy"

$80 trillion wealth globally for Blackstone to tap

Their briefing nailed Blackstone's global growth story and future opportunity. Forbes then juxtaposed "old" private equity with the "new" alternatives version. 


The narrator said:

"Traditional private equity--raising money from large institutions to acquire stodgy companies, taking on mountains of debt and then slashing costs and rejiggering the capital structure for quick profits--that's dying or at best, a slow growth business."

Language like that would not have gotten any Forbes reported access to storied private equity founders like Blackstone's Stephen Schwarzman.  Flashback to Summer 2011:

There are very few people out there who will talk and write honestly about private equity. I know from personal experience that the financial press is so eager to break news on "deals" that reporters (who are increasingly compensated on the number of "market moving stories" they write) can't afford to be critical of Carlyle, KKR and Blackstone, and risk losing access to people at those firms.
New private equity is "alternatives:"

The new game, dubbed alternatives, is all about growth.  Firms buy companies in areas like logistics, infrastructure, life sciences and e-commerce, and make them bigger not smaller.

That rings untrue as private equity underwriters (PEU) have long said they offered "growth capital" and for some time invested in many of the listed industries.  Sponsors frequently made affiliates bigger through acquisitions. later monetizing them.

Blackstone Infrastructure Partners is nearly seven years old.

BIP was formed in 2017 with a $20 billion long-term matching anchor commitment from the Public Investment Fund of Saudi Arabia.
Back to new private equity or alternatives as described by the narrator:

Unlike old school buyouts in which fund lifespans were limited to ten or twelve years, contributing to a slash and churn culture, the hottest funding source in the business is now something called perpetuals.  Buyout funds that are often individual investor friendly and have no end date.

Blackstone's new schtick it to buy and hold.  New funds enforce this by limiting redemptions.

To .sum up, Forbes believes the "greed and leverage" boys were once evil, but have seen the error of their ways.  They've turned over a new leaf and are now the "fee and credit" boys.  Amend that to "fee and senior credit boys."

PEUs mostly took over companies by buying equity.  The future suggests they will take over firms by holding senior credit positions and force debt restructurings.  It's not new.  

Ask the Brintons' family.  They once had a stodgy British carpet company.  The Carlyle Group bought discounted debt and pulled the capital rug from under "the owners."

Credit is the new/old way for PEUs to get affiliates.  As for their metastasizing around the globe my wise friend said:

We are perpetually ****.  They don't have to sell, They monopolize everything, they are funded, subsidized and take advantage of every TAX destination available.
My friend shared a graph that shows how the super-wealthy's advantages are perpetual.  

I added two lines, one for the 2008 financial crisis and another for 2013 when the World Economic Forum targeted income inequality  The top 1% blew through both of those potential barriers.

Forbes Blackstone piece suggests they will continue blowing.

Update 2-25-24:  Politicians Red and Blue love PEU and increasingly, more are one.  They serve the billionaire class, not the middle class.