Monday, August 17, 2009

Bookkeeping: Adding to Blackstone Group (BX)

Since I was going to do a separate entry on Blackstone Group (BX) anyhow, I thought I might as well break this purchase out on its own. We are going to begin to rebuild this position on a pullback to a light support level around $13.00. I am hoping to rebuild the lion's share of this name on a move down to the mid $11 or even better mid $10s. But for now we'll take it from a 0.1% stake to 1.1% and hope we lose money on this first batch so we can buy lower in the future. The volatility of this name has been immense and current valuation is very difficult with all the moving parts and associated companies they control within the empire. All I know is we left a lot on the table in this position the past 6 weeks - while we enjoyed the $8s to $11s (in 2 weeks), we would of enjoyed the $8s to $15s (in 4 weeks) a lot more!

Steve Schwarzman has been one busy fellow of late. Aside from doing a quite rare bond offering (for a PE firm anyhow), Blackstone is setting up a local currency private equity shop in China. So I suppose this is yet another way to play China via US channels. The bond offering is interesting considering BX already sits on an Apple-like $28 billion war chest. My only hope is this money actually goes for corporate activities and not simply to give handouts to management, as private equity firms are apt to do.

First the yuan based PE fund . Please note that the Masters of the Universe are also following suit... (last bullet point)
  • Private equity firm Blackstone Group LP (BX) plans to launch a 5-billion-yuan ($732 million) fund that will primarily invest in the city of Shanghai, the city said in a statement on Friday. The fund is the first local currency yuan fund to be launched by Blackstone and will mean the establishment of a wholly-owned China subsidiary for the giant private equity company.
  • Besides Blackstone, foreign early birds for such a move have included U.S. venture capital firm Sequoia Capital, which last year raised about 1 billion yuan for its first yuan-denominated venture capital fund to focus on small China deals.
  • Blackstone signed a memorandum of understanding with the Shanghai local government on the fund's creation during a signing ceremony on Friday.
  • The Financial Times, meanwhile, reports the private equity arm of Goldman Sachs(GS), in addition to Blackstone, is establishing an investment company in China to raise renminbi funds from local investors and take stakes in local companies with Chinese partners.
Next, the debt...
  • Blackstone Group LP (BX) sold $600 million 10-year senior bonds Thursday, in a deal that was the first for the company and rare for private equity firms. Since 1995, only $19.4 billion in corporate debt globally has been sold by 12 private equity firms, which include 3i, Allied Capital and American Capital Strategies, according to Dealogic.
  • The notes, issued through its subsidiary Blackstone Holdings Finance Co., yielded 6.73%, or 312.5 basis points over comparable Treasurys, a person familiar with the deal said.
  • Blackstone, the first major U.S. private equity firm to become publicly traded when it listed in June 2007, announced plans for the bond offering on Wednesday and said proceeds would be used for general corporate purposes. (that's so vague)
  • "This step of tapping the public debt markets is further a sign that Blackstone is drifting more towards the investment-banking model of debt issuance, only without the sales and trading," said James Lee, senior fixed-income analyst at Calvert Asset Management.
That last point is ironic considering a year ago at the time, that model was deemed "dead" and it only survived due to the US government stepping in to support Goldman and Morgan. Oh dear irony. As an investor we can only wish Blackstone Group also gets too big to fail so that if anything goes wrong down the road, fellow citizens can backstop the company. I say that only slightly tongue in cheek because that is the culture we have now told the titans of finance will be the landscape go forward.

[Aug 6, 2009: Blackstone Group Beats, But Already Ran into Earnings]
[May 7, 2009: Blackstone Group Narrows Loss]
[Mar 31, 2009: Bookkeeping - Starting Blackstone Group]

Long Blackstone Group in fund; no personal position

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