UK assets ‘absolutely’ a buy, says Blackstone’s Jonathan Gray

By Joseph Adinolfi

Factors contributing to the highest U.S. inflation in decades are more entrenched in the U.S. economy than many investors realize, said the president and chief operating officer of Blackstone Inc. (BX) , Jonathan Gray, during a Thursday interview with MarketWatch.

And therefore, the Federal Reserve will likely have to keep interest rates high for some time if it hopes to finally ease price pressures.

But investors patient enough to wait out volatility could emerge with strong profits.

As stocks, bonds and the U.S. dollar fluctuated wildly on Thursday following a stronger-than-expected inflation report and corporate earnings from a few key components of the S&P 500, Gray added that opportunities abounded for investors able to withstand short-term volatility.

“Well, if you step back and look back at the US economy, the good news is that it’s been remarkably resilient. The bad news is that the US economy has been remarkably resilient,” Gray said. during an interview with the editor of MarketWatch. Chief Mark DeCambre to commemorate the 25th anniversary of the website.

Asked about pockets of strength in the US business landscape, Gray cited the energy sector, travel and technology companies with a focus on connecting users to the internet as potential opportunities for investors to retail looking to put money to work.

Asked about his outlook for inflation, Gray said he expects the Federal Reserve will likely have to keep interest rates high at whatever peak they may be – some economists now expect that the federal funds rate could peak at 5% or more. — longer than many investors might expect if they hope to finally ease price pressures.

He cited the robust job market, high energy prices and residential housing shortages as examples of shortcomings in the US economy that could keep inflation high.

“All of these are headwinds to the Fed’s goal of lowering inflation,” Gray said.

When it comes to housing, the main imbalance keeping rents and house prices high is that growth in the supply of residential homes has not kept pace with demand – although construction has accelerated in the past two years. years as home values ​​have skyrocketed.

While the impact of higher interest rates is felt immediately in financial markets, the impact on the real economy takes longer to be felt.

“As banks tighten credit, as the cost of funds goes up, people start to change their behavior, but it takes time for this transition mechanism to work,” Gray said.

Asked where Blackstone (BX) sees opportunities, Gray said “we like variable rate credit” and durable assets like real estate – in particular, logistics-focused properties like data centers, which have become a major stake for BlackStone’s real estate group.

One of Blackstone’s first employees, Gray pioneered the company’s multi-billion dollar real estate business.

Regarding the equity market, Gray said “we like some of the sectors that have real long-term tailwinds that the market sold off today.”

He spoke of tech companies focused on “moving our lives online”, as well as companies involved in the transition to greener energy, as well as “life science” companies – especially those that focus on genomics and big data.

Asked about the UK towards the end of the interview, Gray replied that UK assets were “absolutely” an opportunity for investors.

The next-twelve-month price-to-earnings ratio on Britain’s FTSE 100 has fallen below nine times earnings, according to FactSet data, a fact Gray mentioned when listing a list of factors that make UK assets an attractive buy. , in his view.

He also cited the UK’s relative stability, strong legal system, being an English-speaking country and London’s status as a “magnet” for talent.

Finally, Gray concluded with some thoughts on one of his best-known deals at Blackstone: the takeover of Hilton Worldwide (HLT) (then known as Hilton Hotels). The company completed the takeover just before the US economy crashed and US stocks crashed during the Great Financial Crisis.

However, Blackstone held on and eventually took Hilton public in 2013, seven years after its purchase, making a tidy $14 billion profit. The deal is remembered as one of the most profitable deals in the history of the private equity industry.

“Hilton’s lesson was that we owned a great business…it was a terrible time in 2008 and 2009 but we had resistance…we reinvested at the bottom and we were able to come out the other side “, said Gray. said.

-Joseph Adinolfi

 

(END) Dow Jones Newswire

10-13-22 1556ET

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