As Blackstone moves towards the trillion dollar asset target, growth is on the line, value is out

The new approach has led the New York-based firm to invest billions in faster-growing companies – including in the tech sector – to which it previously paid less attention.

He took Blackstone out of his traditional comfort zone of turning around underperforming businesses through cost reductions and efficiency improvements – and maximizing returns by using large portions of borrowed money.

The growth bug has bitten almost every corner of the sprawling company, including its real estate, credit and hedge fund businesses. Among the assets of its main buyout fund is a significant stake in Bumble Inc.,

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which Blackstone acquired in 2019 as part of a deal that valued the owner of the dating app at $ 3 billion. The stake’s value has nearly quintupled, with the company’s market cap hitting around $ 14 billion after it went public in February.

Mr Gray’s thematic approach and the growth direction it spawned shows how the alleged heir to chief executive Stephen Schwarzman, 51, is making his mark on the company as it moves towards the goal of managing $ 1 trillion in assets by 2026.

“Investing is looking to the future, but the future is coming faster,” he said in an interview. “You want to be exposed to companies that benefit from this change.”

One of its big goals is for employees in disparate businesses across the company to all think about the same themes and discuss them with each other.

Blackstone has long been interested in identifying growing industries, but under Mr. Gray he has become clearer about what he won’t buy, said Joseph Baratta, the company’s global head of private equity. . In addition to physical retailers, this list includes established media and telecommunications providers and businesses that depend on single-use plastics.

“There are certain types of businesses that we just aren’t going to invest in, no matter how cheap,” Baratta said.

The strategy is not without risk. The assets the company collects could be among the first to be affected if, for example, the recent interest rate hike continues as the economy emerges from the pandemic-induced lockdown.

Rivals such as Apollo Global Management Inc.

have largely resisted the lure of the growth strategy, preferring instead to invest money in hard-hit areas like gaming and physical retail. But even the historically value-driven Apollo has done more tech-related deals in its most recent buyout funds. The company also raised two blank check companies targeting growth-oriented transactions.

Among the themes that have guided Blackstone’s recent investments are the ongoing shift to e-commerce and the technological advancement of the life science industry.

The company has launched a new venture dedicated to investing in life sciences, including supporting new drugs in late stages of development, the last thing a traditional debt buyout would target. He hired Jon Korngold, a General Atlantic veteran who pioneered growth investing, to start a new business taking minority stakes in growing companies.

Blackstone, which had virtually no presence on the West Coast, opened an office in San Francisco and hired executives and advisors from tech companies like Amazon.com. Inc.

and snowflake Inc.

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And in November, she hired Jennifer Morgan, former co-CEO of enterprise software giant SAP SE, to lead a team helping the company’s more than 200 portfolio companies “drive growth through transformation.” digital”.

Blackstone is not alone. A growing number of its rivals and equity investors have embraced growth as a declining bull market pushes up the prices of all kinds of assets and leaves fewer and fewer pockets of value. The two-year moving average of purchase price multiples for buybacks in the United States hit a record 12.8 times earnings before interest, taxes, depreciation and amortization in 2020, according to an analysis by McKinsey & Co. , i.e. 11.9 times in 2019 and 10.2 times in 2015.

Mr. Gray’s thematic thrust arose out of personal experience. He led Blackstone’s $ 26 billion deal to buy Hilton hotels Corp.

LDS -0.99%

on the eve of the financial crisis. As the hotel chain’s operations suffered from the ensuing economic recession, foreigners often called the transaction a failure. Instead, Hilton became one of the most successful private equity investments of all time, ultimately reaping more than $ 14 billion in profits, more than three times Blackstone’s initial investment.

Mr Gray said he learned from experience that the efforts of Blackstone and Hilton management might not have been sufficient if the company had not enjoyed a long-term growth trend. in global travel, the thesis behind the investment.

“Over time, what mattered was you picking the right neighborhood, not the right house,” said Gray.

(Mr. Gray’s penchant for hotels remains, witness Blackstone and Starwood Capital Group’s deal this month to acquire Extended Stay America Inc.

STAY 0.26%

in a bet that a rare bright spot for the accommodation industry during Covid-19 will continue to thrive.)

He also led the company’s first foray into industrial warehouses in 2010, betting on the rise of e-commerce around the world. Blackstone is now the largest owner of warehouses used for e-commerce, with an estimated $ 100 billion portfolio of 880 million square feet of such properties around the world.

The two highly successful real estate bets helped propel Mr. Gray’s rise to the private equity giant.

Blackstone’s April 2020 investment in biotech company Alnylam Pharmaceuticals is an example of how its growth-related themes are applied across the company. Inc.

ALNY 2.94%

The $ 2 billion deal was a $ 1 billion investment led by Blackstone Life Sciences in a portion of the total future royalties of a cholesterol drug.

Its credit arm also provided Alnylam with a term loan of up to $ 750 million, and Blackstone bought $ 100 million of the company’s stock. The company’s real estate business also owns Alnylam’s owner, BioMed Realty, which consists of 91 life science-related properties. Last year, Blackstone agreed to sell the company from one of its funds to another in a deal valuing BioMed at $ 14.6 billion.

Write to Miriam Gottfried at [email protected]