Blackstone chairman predicts end to deal drought as US inflation pain fades

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The chairman of Blackstone, the world’s largest alternative asset manager, has predicted that inflation pain has peaked and a year-long drought could soon end.

Jonathan Gray said he was confident markets had absorbed the “shock” of rising interest rates, signaling a possible return to business activity now that US inflation has fallen sharply in recent months.

“Markets will normalize and trading activity will resume,” he told the Financial Times. “It’s possible that with the economy slowing you’ll have another pullback in the markets, but we survived the inflation shock and most of the interest rate shock.”

“I feel better about the way the markets are looking today than they were 12 months ago,” he added.

Financial conditions have finally started to ease after months of sluggish activity, forcing companies in the sector to cut jobs.

US inflation fell to 3% and job growth slowed more than expected in June, a sign that the Federal Reserve’s aggressive interest rate hikes are beginning to cool the labor market. The benchmark S&P 500 index is up 13.6% this year.

Gray’s comments come as Blackstone’s assets under management topped $1 billion for the first time in second-quarter results released Thursday.

The group also generated $1.2 billion in distributable earnings, a proxy analysts prefer as a gauge of the company’s cash flow, slightly beating consensus expectations.

However, this is down nearly 40% from the same period last year as Blackstone sold less of its investments to make a profit amid volatile financial conditions.

Asked about the significance of Blackstone’s passing of $1 billion in assets, Gray called it a “significant milestone” and a “marker” on investors’ push into private markets.

“We believe the potential for alternatives is far greater than most people realize,” he said.

Founded in 1985 by chief executive Stephen Schwarzman and investment banker Peter Peterson with just $400,000 in capital, Blackstone has transformed over the past decades from a small trading firm with a handful of partners into a mainstream financial institution.

Since its listing on the New York Stock Exchange 15 years ago, Blackstone’s assets under management have increased more than tenfold and its market capitalization has soared to more than $130 billion, more than investment bank Goldman Sachs.

Its nearly 5,000 employees manage a portfolio of hundreds of companies that generated combined annual revenue of $200 billion last year, according to Morgan Stanley estimates.

Under Schwarzman’s leadership, Blackstone was the first major buyout group to diversify into investment areas such as real estate, now its biggest business, and into managing hedge funds and credit-oriented investments.

In recent years, it has attracted hundreds of billions of dollars in additional assets after creating new real estate and lending vehicles designed for high net worth individuals and other investors. Blackstone also began managing the debt portfolios of major insurance companies, including AIG and Allstate.

Blackstone’s target market has expanded beyond large investors such as sovereign wealth funds, pensions and endowments to hundreds of thousands of individual investors and a growing number of financial institutions seeking exposure to unlisted investments.

Gray is optimistic that the business will continue.

“I don’t necessarily agree that when you get to a certain size, your growth has to decrease,” he said.