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Blackstone sees dealmaking accelerate with $9 billion in investments in Q3

The Blackstone Group Inc. has seen an acceleration of deal activity in the third quarter, investing a total of $9 billion across several transactions. It also committed $19 billion to pending deals, including several investments subsequent to quarter-end and marking "the largest outstanding commitment pipeline in the firm's history," President and COO Jonathan Gray said during the firm's quarter-end earnings call.

Outlining some of the deals in the quarter, Gray pointed to the firm's private equity business acquiring digital family history company Ancestry.com LLC in a deal with a total enterprise value of $4.7 billion, as well as its corporate carve-out of Takeda Pharmaceutical Co. Ltd.'s Japanese consumer healthcare business.

Its tactical opportunities business made investments in Cryoport Inc., a logistics solution provider to life science companies, and digitally enabled insurance platform Ki, in partnership with Lloyd's of London Ltd.

Additionally, the firm's credit business launched a clean energy lending platform and is financing a provider of loans for home solar panels, Gray said.

Thematic investments

In terms of future deployment, Gray said "being thematic" continues to be "really important" for the firm. There are tailwinds across technology, digital infrastructure, e-commerce, sustainable energy and life sciences, for example. "[But] the challenge is, can you buy them at reasonable prices?

"One of the ways to do that is to buy things that are sort of one derivative off. Maybe you can't buy a media company or a tech company, but you can own their real estate. In life sciences, we made an investment in tactical opportunities in the cold storage logistics area," Gray said.

Some industries that have been disrupted will still be attractive in the long term and now offer attractive entry points, he added. "The travel area, location-based entertainment — think of water parks and Disney World and sporting events. Urbanization — people right now are fleeing cities. Those are all trends we think will come back, but there's an opportunity to invest in them at what could be attractive prices [because] there could be distress."

Blackstone's scale and ability to intervene and improve businesses also widens the scope of attractive investments, CFO Michael Chae added. The firm is able to use "the scale of our platform and the capital solutions [that] we can provide quickly to companies like [funding for] Alnylam Pharmaceuticals Inc. in the life sciences space earlier this year. [With] those larger assets and companies, there's also much more surface area to improve and create value."

Strategy recovery

Nearly all of Blackstone's major strategies "have now reversed the unrealized marks we experienced," Gray told listeners on the earnings call.

Across its real estate business, the firm's opportunistic funds appreciated 6.4% in the third quarter, "and are now down only 1.1% year-to-date compared to a 17% year-to-date decline in the public REIT index," Chae said. Its core-plus funds appreciated 3.5% in the quarter and are up 2.2% year-to-date, with its non-listed REIT, BREIT, up 2.8% year-to-date, he added.

Approximately 80% of its real estate portfolio "is in sectors showing not just resiliency but fundamental strength, including our holdings in logistics, suburban multifamily and life sciences office," Chae said, adding that "travel-oriented and certain urban office and apartment assets remain under pressure, meanwhile, given the environment."

Its private equity business has seen two consecutive quarters of double-digit growth with its corporate private equity funds appreciating 12.2% in the third quarter, Chae said. The funds "have now fully retraced the first quarter declines." Its tactical opportunities funds appreciated 10.7% in the quarter and are up 4% year-to-date.

"Gains were driven most notably by strength in our technology, consumer finance and renewable energy holdings," he added.

The firm's secondaries strategy declined 13.2% in the quarter. The firm's reporting is on a two-quarter lag and results are "reflective of first-quarter market downdraft," Chae said. The firm expects this to reverse over the coming quarters.

The hedge fund solutions business appreciated 3% in the quarter with its credit composite up 4.4%, according to the investors presentation. The two strategies are up 2.1% and 1.1% in the 12 months to the third quarter of 2020, respectively.