Blackstone 2Q16 Earnings Call Notes

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The Blackstone Group’s (BX) CEO Steve Schwarzman on Q2 2016

Macro background characterized by uncertainty

“We are executing against a macro background characterized by uncertainty, low and slowing growth and an astonishing low interest rates around the world. The 10-year U.S. Treasury recently hit its lowest point ever and one-third of developed nation’s sovereign debt is trading at negative yields, and I think two-thirds trading below 1%.”

We’ve been going through an extraordinarily strange period

“We’ve been going through an extraordinarily strange period recently really starting last summer with the scare set up by China’s currency devaluation. We then experienced the worst start of the year for equities since the great depression and either greater chaos in the debt markets caused by an incorrect read of weakness in China and weakening trends in the U.S. That was followed by a sharp and surprising market rally which left many money managers wrong-footed only to be hit again by Brexit in the last week of the quarter. And today, the S&P has moved back to an all-time high. Go figure, all kinds of odd things are happening that are affecting markets generally and are presenting what we expect could be very interesting investment opportunities.”

Transaction activity should be slower in the UK

” In the near-term transaction activity in the U.K. should be slower as decision-makers for businesses remains uncertain and market participants digest the potential impacts of the many different ways that Brexit can evolve.”

Brexit will likely have some modest adverse impact on global GDP

“Longer term, Brexit will likely have some modest adverse impact on global GDP. Although it’s too early to assess the full extent given unanswered questions like whether the U.K. will retain access to the European single market. Brexit will possibly constrain access to capital in Europe and you’re seeing those tremors hitting the banks and will embark the populist antitrade anti-immigration movements across the continent which is not good for the flow of capital and trade.”

Tony James

Credit markets are a great opportunity

“One of the areas of greatest dislocation in terms of technical factors is credit. The regulatory changes, the capital pressures on the banks, the weakness of their balance sheets and all those things accumulated to evaporate credit and credit markets – sorry, liquidity in the credit markets as Steve in particular has been commenting on. And that’s created a lot of pricing dislocation.”

“So I basically think credit markets in particularly illiquid credit markets are going to be a really, really great place to be going forward, thanks to the regulators and the government that are impairing the banks and the investment banks and the providers of liquidity. So very broadly this is a play on where we are benefiting from regulatory if you arguably overreach.”