Blackstone 2Q13 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“It appears that markets persistently overreacted initially to the Fed’s indication on when and how it march for tapering its bond purchase program.”

“Higher rates, as Tony mentioned, are not per se negative for Blackstone as investors may have initially believed. Historically, we performed well in periods of rising rates and we are well sufficient today given our mix of businesses and investments. When rates rise in tandem with better economic activity, the result is higher cash flows for most of our private equity and real estate assets and higher returns for hedge fund solutions businesses.”

“interest rates rose in 26 of the past 50 years and in every single one of those years, when interest rate grows, home prices actually increased”

“During the quarter, we invested two-thirds of our capital in the United States, one quarter in Europe. We also committed to our first large scale joint deal with our partner in Brazil Patria to acquire a controlling interest in near nations best in class branded national developer or residential lots.”

“ur approach is buy it, fix it and sell it. And you know that happens over periods that vary slightly with changes in economic activity and so you are seeing that accelerate in the US because we started buying very large amounts of real estate really about three years ago in real scale and we’ve been the largest purchaser in the world with vastly exceeding, vastly, multiples than anyone else.”

“The cycle is changing now in Europe where that will be an investment cycle that will take longer to come out of by the nature of the underlying European economy which is evidencing virtually no growth.”

“Asia will have another cycle still because it’s continuing to grow but its experiencing real estate credit shortages as some of those economies grow slower and the economies generate other problems besides just real estate developers who can’t sell out projects.”

“So we actually announced this week that we will be rolling out a product, we can’t really talk about distribution partner and all that yet, you’ll hear from us in the future but it’s a product that we’re really excited about. It took a very long time to figure out, we think, we’re unique in the ability to execute this, the way we are given on our positioning in the hedge fund solutions space, I mean it’s an exciting product, it’s probably a bit early to say much more given that the rollout hasn’t happened…But what we can say is, it essentially for retail investors, it will give them access to some of the leading hedge fund managers but still preserve their ability to have daily liquidity and daily marks. So that was a bit of the trick, it’s accomplishing both those things and we think we’ve done that. So we hope — and we have a strong distribution partner. We hope it works. It will be well received.”

“If higher rates come in a weak economic environment that would be, I don’t see that happening but that would be, I might give a different answer to that.”

“if rates went up high enough, fixed income would look attractive, but on the other hand, they’ll take a lot of mark to markets that will be very, very painful. So, if a sharp and significant increase in rates is probably not good, because they’ll have markdowns that will get into asset allocation issues, and they’ll look at fixed income as having a more attractive go forward return, based on the surveys we’ve done of LPs, they’ve been thinking in the treasuries and investment grades, will future returns will be somewhere between 0 and 2% on their fixed income portfolio. They’ve been thinking that equity markets go forward returns be something in the 6% range.”

“So no matter how you mix those you know 50, 40 or two-thirds, one-third, no matter what mix you put on public securities, you get a low single-digit return if you are a big institution and that just doesn’t get on there, if you are a pension fund that doesn’t pay for your liabilities. So that’s why they are shifting the alternatives and I don’t see rates going up enough to change that.”

“When we talk about rising rates in this environment, we have extremely low levels of inflation. And so rising rates ought to be a very moderate type of phenomenon and it’s clearly being micro managed by the fed to not really hurt an economic recovery.”

“So as the economy goes up and as the real estate market intrinsically gets stronger and with construction so limited of new construction, I would expect spreads as base rates go up spreads come in a little bit and can cushion the blow of higher treasury rates if that happens.”

” in the US…It’s not like all the distress is gone by any means but [real estate] markets are healthier, properties are doing better and private markets are very accommodating. So in the US, that’s starting to happen and there’s definitely less distress then there was a year ago.”