Economy Will Grow at 'Muted Rates'–Steve Schwarzman

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Courtesy of Craig Franklin, a Cornell MBA, following is a summary of an interview with Steve Schwarzman, CEO of private equity firm The Blackstone Group.

LPs looking for more money back from illiquid assets, some nice exits.

Blackstone plans to IPO 8 companies and sell another 5 Strong growth in Asia – China @10% due to economic stimulus, India at 7-8% range, Indonesia and Australia growing, Japan also growing (growth @ 1-2%), and Latin America (commodities driven which are linked to exports to China).

U.S. at about 3.5% or more in Q4. Slowest growth is in Europe.

Banks are challenged b/c they are fending off defaults from consumer, mortgage, credit card, etc. Reasonable to expect growth at muted rates.

$3-$5B range. Leverage at 4-6x EBITDA down from as high as 11x, equity contributions of 30-40%. So sizeable equity checks required for a $4-$5B deals.

Opportunities in the US and Asia, less in Europe. Industries is function of pricing available. Too early to be playing the large scale cyclical businesses.

Resources are interesting but must be careful. Huge cyclical rebound in resources because people use them as a hedge against weakness in paper money. Gold, hard resources, oil are used as offsets.

Standard view of commercial real estate is that the refinancing necessary won’t be available. Prices have decreased and there is bound to be difficulty in those areas. Rates have dropped to finance real estate. Many owners will not have enough equity to refinance.

Opportunities for investors.

Changes on Wall Street

Major players no longer exist and remaining banks are making more money.

Need a major relook at capital ratios.

Pretty clear that those boom years led to excess. Impact of rating agencies on subprime loans, that was way overdone. Affected American consumer who over borrowed, real estate was overleveraged. PE was paying too much money for businesses as were strategics. Global coordination so Fed policy also helped this and a regulatory regime could not cope with modern types of securities. System needs to be redesigned.

US Economy needs stimulus, most will be coming in this year. Beaten up US consumer and it will take a while for the consumer to rehabilitate their balance sheet. Stimulus is filling that void. Selective with who you invest in. Just bought Busch amusement parks. Great time to be buying assets that have been hit by lack of consumer spending and at a good price.

China has wealth to stimulate their economy, countries that touch China should have a very good economic future. Look at who China touches, very powerful long term growth engine that will shortly be converted to a more consumer focused economy. Generally, the developing world is now 34% of the global economy so keep a close tab on opportunities abroad.