Transcription
Jon Gray, thank you so much for speaking to Bloomberg. Great to be with you. It's, it feels like extraordinary times because of everything that's happening in the world. I market mayhem in the Middle East. What does it mean for Blackstone?
Well, first off, our thoughts are with everybody in the Middle East. We have a lot of friends and colleagues there, and hopefully this gets resolved quickly for everybody. I think for us, we tend to take a longer term view. I mean, obviously in the near term, if you're trying to get an IPO done or transactions, things are paused while this volatility plays through. But what we've learned over time and you saw this last year with Liberation Day, you saw this with Covid in the past that you don't want to be too quick because these things can settle. And I think in this case, the war will settle. And then what comes back is to focus on the main thing. And of course, the main thing today is what's happening in AEI, this enormous investment that's going on there, the productivity gains, some of the issues around disruption. So near term, I think it slows things. But then I think we revert back to sort of underlying fundamentals, also a healthy economy and and inflation falling, which should allow transaction activity pick up near-term. A little foggy here, but I think the outlook after this is probably pretty good.
But could you see deals at more or less a standstill for the next six months as we try to figure out what happens to the price of oil?
No, I don't think so. I mean, you look at the price of oil and given day, I guess yesterday moved $30. I think, again, once the conflict settles, I think oil prices move back down. And what will matter more then is, hey, companies earnings are growing strongly. Inflation is heading down. The Fed is likely to cut rates and we should see a pickup in transaction activity. Now, I think the area that will be tougher is those areas perceived as being more vulnerable to disruption. That will be more challenging. But we have a couple of businesses we took public at the end of last year. Medline in hospital supplies, legions and energy management. These stocks are up, you know, 50, 80% because they continue to grow and the market's looking for sort of terra firma companies. They feel good about longer term. And I think that desire for those kind of businesses and those benefit businesses that benefit for me, I will continue. So I view this more as a pause as opposed to something that's longer in nature.
How do you think about I mean, this is another layer of disruption. Yeah, and it's unclear where it ends. I think of AI is completely transformative in almost every aspect of our lives in business. The idea that we have superintelligence at massive scale will just be so powerful. And so the key is investors, is how can I invest against that? We've been the biggest investors in the world in digital infrastructure data centers. We're probably the leading investor in power electricity, giving capital to utilities, electrical equipment. I mean, that foundation needs to be put in place first. But then you've got to apply it at your companies. How do you do something, you know, work base rules, base processing, accounting, legal. So much is going to change. And on the really positive front, and I know there's a lot of worries which are rightfully about what it means for society, but what it's going to do for health care in precision medicine. I think some of those benefits will be truly extraordinary. And I would just say at Blackstone, pretty much every investment is looked through. A lens of A.I. to 20 years of operating history becomes less important as to what is the world going to look like? How will this business be impacted? We have enough humility to know we don't know the answer, but if we focus on it, it allows us, I think, to be better investors. And again, that's sort of the way to look at the world going forward.
What does it mean for Europe? So Steve Schwarzman told me last year, actually in June, that you had $500 billion of capital being put to work in Europe. Have you found deals?
We continue to find deals in Europe. I would say, you know, Europe remains is very large economy, lots of people. For us competitively relative to the US, there are fewer players on the ground and there's a lot of talent here. The biggest challenge, of course, has been the regulatory environment, which slows down creation of businesses, slows down building physical infrastructure, housing. I think the good news is the governments now, policymakers are beginning to recognize, are they really? I think there's some recognition the Draghi report crystallized this when you meet with. Policymakers, they know it's a problem. It's creating affordability issues. But it's also challenging their ability back on A.I., because building data centers in Europe is very hard. You know, as I said, we're the biggest investor in the space. We just signed up a big lease in the Netherlands. We're looking to do more here, but it takes a lot of time to get the approvals and then to get the energy. And there is a recognition from policymakers. I'd also say there are some businesses in Europe that I think will do quite well. Defence, obviously is going to grow a lot. Energy, digital infrastructure, travel. Europe will continue to be the leader. But we also have to acknowledge that Europe is going to grow more slowly and I think that will result in interest rates coming down also.
Is the UK any better?
There's there's again, so much anxiousness actually about, you know, if this government lasts, what comes afterwards. The UK again has a lot of great assets right the talent this amazing city in London, the rule of law, property rights, a lot of dynamism. I do worry a little bit that in an effort to solve some of the fiscal challenges, some of the policies are leading to some of the job creators leaving the country. And that's probably the thing that we're most concerned about now. But I understand they've got other fiscal challenges. But I think this country, long term, because of the talent and education, should do well. But near-term, the headwinds have been significant. I think as the inflation comes down and the central bank's able to cut rates and obviously with oil prices that make the data won't be perfect in the near term, but I think the trend will be down. That should help this economy. And I do think they do need to look at the regulatory state here because they need to see more creation of businesses, more housing built, more energy infrastructure. That's really important for Europe. And I do think that holds things back.
The market's worried about I do worry about geopolitics. They're also worried about private markets. Do you see anything that could, you know, harken back to the global financial crisis or something systemic?
Yeah, you know, we hear a lot about that these days, that this is similar to oh eight, what you're seeing in private credit. And it's hard to reconcile that kind of commentary with the actual facts we see on the ground. So if you went back to oh seven, banks were 30 to 40 times levered. When we do private credit, we either do it unleveraged for institutional clients or less than one time levered in our non-traded BDCs and so forth. When we look at the liabilities, remember the banks between deposits and commercial paper and repo, most of their liabilities came do every day. These vehicles don't have anything like that. And on credit worthiness back then, remember subprime had north of 20% defaults. Today, in private credit, it's low single digits. Now, will it go higher? Yes, but I think this is all very much overstated.
But are you are you expecting some kind of shake out like the Apollo chief executive said?
I guess what I would say is I would expect some increase in defaults just because they're at a very low level. I do think the disruption will have an impact. So I think you have to remember that in not investment grade credit, historically there are 3% defaults. So if the private non-investment grade world's 1,000,000,000,008, that means $50 billion of credit default. So that's part of the world that exists. But I don't I don't see, for instance, something larger systemic. And when we look at the credit worthiness of our companies and as I said, there will be individual default. But last year in our BTC EBIT, our growth cash flow growth was 10%. Debt service coverage went up 25%. You know, those are not the signs of something that's, you know, nearly as problematic as you read about.
John Great. Thank you so much. Francine. Thank you.