Blackstone/asset sales: combine harvester should beware the cycle

In the world of private equity, there is a time to reap and a time to sow. At Blackstone, the harvest festival has already begun.

The world’s largest alternative asset manager has benefited from the red-hot stock market and rising valuations of the company to earn some of its investments. It $ 19.6 billion in sales assets during the second quarter.

This, coupled with a 30 percent increase in earnings for management expenses, helped Blackstone nearly double its distributable earnings, or the share of profits that could be returned to shareholders, to $ 1.1 billion.

Blackstone is not the only one that is rushing returns. According to data provider Preqin, the sales of companies by buyout groups have already generated $ 286 billion this year. This is more than the total recorded in the last two years. An increasing market for initial public offerings and the proliferation of procurement ventures for blank checks means that there is no shortage of exit channels.

Increasing valuations also mean that buy-out companies have to pay for new transactions themselves. According to PE Refinitiv, PE firms paid an average of 13.2 times an enterprise’s ebitda for US leverage.

At Blackstone, assets under management grew by more than a fifth to a record $ 684 billion during the second quarter. Although it put in nearly $ 24 billion in the last quarter, it still sits on nearly $ 130 billion worth of dry powder.

There is no doubt that Blackstone had a productive pandemic. But that is already reflected in its share price, which is trading at a record high after rising 90 percent in the past year.

It also means going beyond the traditional hunting ground for assets in need. It makes bets on fast-growing technology, life science ventures and real estate.

The question investors need to consider is whether Blackstone may be succumbing to the traditional vulnerability of private equity to market cycles. If you sell above, it will be of no use if you invest all the returns in stocks that fall when the current exuberance evaporates.

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