Brighter 2017 for Blackstone
We think the environment’s improving for the wide-moat firm.
Blackstone (BX) reported strong fourth-quarter results, and after a challenging industry environment in 2016, we think the alternative asset manager’s outlook is beginning to improve.
Entering 2016, we were concerned about market volatility, lower IPO activity, and tighter credit markets making it difficult to exit investments and make new leveraged deals. The weaker level of exits in private equity hurt incentive income, and we were also concerned that a decline in the level of exits meant less capital for limited partners to recycle into new funds, reducing Blackstone’s inflows. We were optimistic that there would be more investment opportunities available, though the pricing environment was difficult with more than $800 billion in dry powder across the industry and median deal multiples at more than 10 times EBITDA, according to PitchBook data, far higher than recent years. Broadly, with more aggressive economic growth, deregulation, and lower taxes on deck, we think these trends will take precedence in 2017, improving the industry outlook by accelerating exits at portfolio companies, investment returns, and investment activity and offering the potential for an attractive C-corporation conversion from a limited partner structure.
Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.