Blackstone 4Q15 Earnings Call Notes

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The Blackstone’s (BX) CEO Stephen Schwarzman on Q4 2015 Results

We do not see a recession in the US but do believe global GDP growth is slowing

“It’s always possible that a market correction becomes something more significant, we at Blackstone do not see a recession in the U.S. We do believe that global GDP growth is slowing, we’ve seen a slowdown within certain sectors and regions in our global portfolio as a result.”

Stock price decline is not indicative of the fundamental value of our assets

“our stock price decline is reflective of what’s happening in the public markets and the mark-to-market movement of certain of our assets, which we do not believe is indicative of their fundamental value as measured by their operating results and their prospects. This temporary decline in value should normalize overtime.”

Right now you’re getting Blackstone on sale

“right now you’re getting Blackstone on sale. As I’ve shared before, we’ve done an implied stock price analysis for the next 10 years. Based on what we believe to be conservative assumptions of AUM growth of 8% to 12%. By the way, last year was 16, but we just like — we’ve some numbers for you, at 8% to 12% as well as lower than historical returns for our drawdown funds in the mid teams instead of higher and mid-single digit returns in our liquid strategies which has historically has been much higher. The implied total value for Blackstone shares over that 10 year period would be in a $100 to $125 per share area. That is including distributions and using what I believe is a reasonable yield of 5% to 6% on our cash flows. That $100 to $125 per share value equates to a multiple of money to U.S. investors of between four and five times today’s stock price.”

We’re not doing buybacks because I like cash

“the question is why aren’t we doing a massive stock buybacks now and one of the reasons is that I like cash, I like it like a lot of entrepreneurs like cash whether it’s the Microsoft people or the Google people or the Apple people, you like cash because it gives you the opportunity to take advantage of opportunities and what happens is”

There are no brave old people in finance because they get wiped out when they’re younger

“And for us to actually buy something there has to be a fit of values and culture and risk aversion because what I figured out is that there are no brave old people in finance, usually it get wiped out by being brave when you are younger. ”

Purchase opportunities come in adverse market cycles

“we found some really terrific opportunities and more of this stuff comes out of the woodwork when you have adverse market cycles than when you are at tops. At top everybody is self confident and happy and then when the tide goes out you see who is wearing bathing suits or whatever and maybe I was like, to have to be wearing them, but we are seeing some activity now, we will see what happens with it.”

I think the concerns about China are a bit overdone

“I think it’s sort of the — it’s always hard to know what everybody thinks, but sort of from trying to feel the consensus has been very negative towards China.”

” if you have half of your economy growing at 10+ and the rest is a mixed picture, you’re not in a world of hard landings other than the fact that people have lost confidence in some of the policy directions in the market place. So, I think that’s a bit overdone.”

It’s not the end of the world

“it’s not the end of the world. If you look at the stock market, I mean, you have to conclude, it’s like the world is ending. Well, I don’t think the world is ending. I think we’re going through an adjustment and people like ourselves who own long-term things and add enormous value end up at the end of the day being mega winners'”

Tony James

The longer oil prices stay low, the higher they will be in five years

“we could survive these prices for several years with the investments we are making and still we expect prices to be 65, 75 in four or five years and we will make some very, very nice returns. So, when we look at energy investing we look at surviving a long time where prices are today and then still getting very, very nice returns if we get back to prices 60 or above which are well below prior peaks. And ironically, the lower prices go today the higher they will be in five years from now because the more other new drilling and what not get shut off. So yes, we think it’s a very interesting time to put money out now, there is a lot of companies that desperately need capital, you can come at the top in some cases top of the risk stack, top with capital stack and still have equity like return and other cases great companies with good assets just have no alternatives. And actually, I think as the cycle unfolds it will get better and better and better because the prices start to move up the activity level will pick up quite quickly and so I think it will actually even get better as prices move up, it is the way to deploy capital.”

People are over reacting to the stock market

“I think people are over reacting to the stock market. I mean, we had whatever a seven year ball market without a correction. We were like just statistically got to be a way overdue for correction. And the backdrop of the S&P companies’ net income is weak, it’s been zero. So, fees have got high, I mean. And people look at the average S&P, that’s kind of a distortion. Look at the median company in here because the average has dominated, because it’s market evaluated by Apple and a few huge names. Look at the median P, and P is high. So, we had a correction, big deal. There’s enough going on. I think people are overreacting to that.”