By Megan Davies
DUBAI (Reuters) - Blackstone Group
New York-based Blackstone, one of the world's biggest private equity firms, has been hammered as the year-long crisis practically shut down the credit markets.
A revival in leverage is vital for the firm to be able to do deals of any significant scale, and Blackstone's stock jumped 19 percent in early trading to $11.54.
"We will be looking today to an absolute sea change in the global financial system in terms of liquidity," Schwarzman told a packed room at the Super Return private equity conference in Dubai. This could be the action that "breaks the back of the credit crisis," he said.
He was referring to plans by the U.S. government to inject $250 billion into the nation's banks, following similar action in Europe, to revive money markets and try to stave off global recession.
Schwarzman said there was now "absolutely no reason" why anyone would have concerns or fears about putting money into the U.S. financial system.
Blackstone has taken part in some of the largest leveraged buyouts ever, such as the $23 billion purchase of Equity Office Properties Trust. But the future has looked increasingly bleak for private equity firms that rely on financing to strike leveraged buyout deals.
As the credit and equity markets stared into the abyss last week, Blackstone's share price slumped to a third of its $31-a-share initial public offering price in June 2007.
"We were at a complete freefall a week ago," Schwarzman said. "I think it was an unsettling experience for virtually everyone. It started spilling over into the real world."
But Wall Street roared back from its worst week ever with one of its best single days on Monday, as governments pledged to pour cash into struggling banks to restore confidence in a rocky global financial system.
Schwarzman told reporters on the sidelines of the Dubai conference that it would take several months before the banking system returned to better health.
Despite the credit freeze, he said there was still some access to financing.
"Certain of us still can obtain financing in the current environment," he said.
PRESSURE ON
The pressure is on to do deals because buyout firms raised billions of dollars from pension funds and other major investors during the private equity boom.
The credit crunch meant they have been unable to put a lot of that money to work, and many investors who bought into funds are getting nervous about their exposure, particularly amid high-profile disasters. Texas-based buyout giant TPG lost all $1.35 billion of its investment in Washington Mutual.
Blackstone is currently raising a buyout fund; in July, when it had its first closing to investors, it had raised nearly $8 billion, a source familiar with the situation previously told Reuters. Funds typically have several "closes" before they are fully raised.
Asked on the sidelines of the conference about the progress of Blackstone's buyout fund, Schwarzman said, "We are all captives of the global economy and the credit crunch, and I think that the dramatic changes introduced by the government will benefit all forms of capital raising."
Commenting on Blackstone's investment strategy, he said it was important to avoid buying cyclical businesses whose earnings are very dependent on economic ups and downs.
"Going into a recession, what's most important is that you don't buy cyclicals that are going to rebound, only to find out that a recession is getting worse and you've done the age-old trick of trying to catch a falling knife," he said.
Right now, the United States is "a terrific place to be investing money," he said, while Europe is less attractive.
Schwarzman said he was not happy with Blackstone's current share price.
"People look at our equity as a reflection of the availability of credit," he said. "I don't believe any CEO believes his stock is fairly valued."
Asked if he had any advice for industry titan Kohlberg Kravis & Roberts, which plans to become a publicly traded company this year, Schwarzman smiled and declined comment.
(Editing by Will Waterman and John Wallace)
