Blackstone President Gray on Markets Outlook

hey everybody i'm alex steele bloomberg television and i'm joined by john gray president and uh ceo of a blackstone he really needs no introduction but i gave him one anyway um john it's good to talk to you first off how are you how you doing i'm doing fine alex it's obviously been a difficult period for lots of people but i'm happy to be here and we're really happy to talk to you um there's a lot to get through but i do want to start with the craziness that we're seeing in the market with the reddit guys and the hedge funds and the short covering and the volatility you've seen a lot of stuff this is new what do you think about it well we tend to be long-term investors and so we look at things over a period of time and we try to analyze companies and figure out their value their cash flows their growth prospects and what you're watching now is obviously something that's very different and what concerns me is when asset values decouple from their underlying you know value and that becomes a challenge because at some point we know from history they will converge and that's what i think is likely to happen over time and i worry a bit about what happens with individual investors who are participating i would recommend trying to take that long-term view with investing and at the same time i mean you guys do have positions in hedge funds i mean some of the moves we've seen for hedge funds have been extreme in the last few weeks some actually have to get cash infusions are you worried about your exposure there at all fortunately for us it's not material to our hedge fund solutions business but there have been hedge funds hit and i think one of the lessons here again is how much leverage hedge funds operate with because what happens is in a crisis it can be like the pandemic it can be a natural event or it can be something like this when you have short duration debt and there's a big spike you can lose your assets even if things are moving you know in the wrong way for a period of time and i think that's really the takeaway from this situation i feel like crash up is something that can be coined right we're used to crashing down this is like a crash up um something that obviously and this kind of pairs with um the 2021 and the bide administration this we're seeing more calls for that now regulation um things like leverage things like how many short positions someone can hold like what do you think the evolution of this will become well i don't know regulators are obviously going to take a look on the one hand you know you can't discourage individual investors from making investments they want to make in the market the question is are folks trying to guide things to generate short-term gains i think there will be more scrutiny when they look at leverage the question is are there systemic risks i don't think there are from this so from that standpoint they're just people taking losses but as we move into this sort of new distributed social media-led world it creates new challenges for all of us i think regulators in particular yeah and it really also highlights i mean there's one article in the ft today about how this is the next iteration of the wall street protests uh that we saw years ago and sets up a wall street versus main street how do you at blackstone tackle that narrative you know i'm not sure and i don't know some of this maybe wall street versus main street some of this may be just traditional greed you know people trying to you know tulips rise up people go after things uh as prices rise uh but there could certainly be this element of the the small person versus wall street for us again our approach is we're stewards of capital long term we raise capital from our investors we try to invest in things we believe in we try to add value and generate favorable returns i think that is a much more sound approach to investing and we try not to get caught up in the heat of the day that's fair um all right you just had earnings yesterday i mean you had really stellar numbers um if you were to look ahead to 2021 what do you think we're going to be talking about in a year well that's interesting yeah no we had a terrific quarter and we were excited about that obviously we had great returns for our investors and delivered really terrific earnings and we saw a lot of inflows um and it was on the back of some good decisions we made in deploying capital and a lot of growth we're seeing across the firm as we look forward i think a year from now we'll be talking more about an economy that has reopened and has tremendous strength i think it's hard for us we were just talking off air about this feeling of being trapped at home that so many people have people want to get out and so there's sort of a global cabin fever phenomena that i think is going to reverse itself when we get back out people are going to take you know planes they're going to get in cars they're going to go places they're going to go to restaurants they're going to go to ball games consumer savings are record levels credit card debt has been paid down and so i think we could see a surge of economic activity in the second half of the year in a post-pandemic world now for investors i think what's interesting is you may see commodity prices go up you could see wages go up which is obviously good for lots of people but we could see inflation higher and the long end of the yield curve go up in china today the long end is back to where it was prior to the crisis which is not a surprise given their economy is mostly reopened and when that happens it could impact asset value so i think what we may be talking about next year is whereas 2020 was the year markets moved well ahead of the economy the back half of 21 could be a period where the economy moves ahead of the markets that's a really interesting way of phrasing it and i wonder we're all trying to figure out like what is that level on the tenure or the yield curve that's gonna wind up affecting asset prices you know it's very hard to say i don't know but but obviously if the tenure went from one to two that's a pretty dramatic move i think the most vulnerable assets would be long duration fixed income because there's not a lot to hide if you bought a bond that yields less than two percent in the 10-year goes there for companies it'll be a mixed story some companies will get a real pick up in business activity um but others that are more bond like there could be a little more risk associated with them so you know i think it's hard to say i i'm not necessarily saying you know calling for a sharp decline in markets i'm just saying that um you know we benefited from this great stimulus and very accommodated policy and very low rates and some of that certainly at the long end could go away and it could impact values so then it's like a two-for question um what assets would you are immune from that that you guys are investing in and if there is a decline in asset prices it's material kind of where what's on your shopping list so i i would say generally maybe i'll answer them both together where are we looking i i'd say one place is covered impacted businesses that we think will recover sharply so if you buy into my scenario you'd want to own transportation infrastructure rail roads airports you'd want to own location-based entertainment we own a water park business people want to take their kids back out you'd want to buy hotels we've been big investors in hotels over time i think you'd also be more inclined to own shorter duration floating rate debt we like that in the private markets where you get a little bit more spread and then i would say more broadly and this has been going on with us for a number of years there are still these big economic changes driven mostly by technology that i still think you want exposure around so goods are moving increasingly online and we've been the largest buyer of global logistics today we own a hundred billion dollars it's our biggest exposure at the firm particularly around what we call last mile warehouses we bought some assets in china recently we did a deal in southern california we like that content is moving online video games movies music we bought uh we just bought a video game online advertising business we bought a bunch of studios in hollywood cloud migration software moving to the cloud that's something we continue to like we've done a number of things in enterprise software you need the digital infrastructure to back this up so the data centers the fiber the towers um i would also add this big push into green will continue and today in the stock market some of those stocks have run quite a bit but the overall trend going from less than 10 percent sustainable energy sources to a much higher percentage over the next 20 30 years means huge need for capital across wind and water and solar and battery power and those are areas that are interesting and then i'd say life sciences aren't is another area that we're enthused about it's been our biggest theme we've sort of done it beaker to bedside we've done it in places like life science office buildings we just bought a big portfolio in cambridge massachusetts we've done it in commercializing life science therapies we've done it investing in individual drugs that treat cancer bladder cancer kidney disease diabetes so we're spending lots of time in that area and then the one other thing i'd say about some of these themes is they're not all technology driven aging populations will continue we've played that in japan with over-the-counter drugs and generic pharmaceuticals rising middle class in places like china and india there we've invested in things like education and consumer finance and then alternatives the sector we're in today continues to have a big boost and we invest in secondaries and stakes and managers so it's obviously not an easy time to invest capital but i do think looking at these big thematic changes happening in the world makes it an easier way to invest so that's actually a good segue to this question that we got from a viewer saying the us economy shrank by three and a half percent last year the worst year for growth since world war ii um what would building back the u.s look like and in particular how will young people and the future of our workforce be impacted and i think that also builds on a theme of the migration we've seen out of cities you have been bullish on cities like tennessee sorry nashville austin et cetera um i know you guys are starting a tech branch in miami how do you see all the chess pieces well i i do think lots of things will go back to the way they were i do think many of us are going to go back to offices i think about our company today we have a subset of us here we've been able to do that through testing contact tracing paying for people's transportation and we do it on a voluntary basis but having people in the office together makes us more productive it allows us to interact call people together today we do it in mass in a conference room but that's really helpful training young people i think is virtually impossible in a zoom world it's a great technology when you've worked together for a long time and you have a lot of social capital but for a young person who just is getting a job to be in the office to lean over to the cube next to them i think that's really important so i do think we'll mostly go back to office some functions will be done in a maybe a hybrid role so there may be some decreased demand for office space but overall i think people will come back together and then to your question of where will they go i still think urbanization continues i think the big cities will recover new york city is going to come back i know its demise is talked about quite a bit but this city is going to come back there's so much energy here i think about my daughters leaving college with their friends they're all at home they want to rent apartments and start their lives they want to come to new york city so i think a city like new york will come back but there are some headwinds here no question about it um issues around the cost of living taxes people have now experienced living in places like austin or miami so that's a headwind and some of those cities will benefit no question about it where you'll see movement to nashville and austin salt lake city raleigh durham miami but i think urbanization overall will continue the big cities will come back they do have to make good decisions i think policy wise over time here which is a challenge but some of these emerging cities will have a lot of momentum so i don't think this wind up all of us living in suburban and rural areas and the trends globally towards urbanization i think continue so quick question on that before um i asked you a question about miami so i know we're talking about residential but then when do you see sort of the bottom in commercial real estate prices in some of the hubs that are getting hit hard like in new york so real estate tends to lag um i think apartment values are probably you know we'll probably bottom out here at some point fairly soon because i think people are going to start moving back in to the cities which will help the apartments the office market takes time companies are now uncertain about their futures future what are they going to do how many people will be in the office vacancy rates in places like san francisco have gone from 10 percent to 20 percent you guys had an article about london the sharp increase in vacancy there so i think that will take some time but ultimately there'll be a recovery they'll end up being less building of new office buildings around the world the existing buildings will absorb the space it may take a number of years but we're probably not necessarily at the bottom for valuations yet or the bottom for the rental markets here that'll that maybe they've sort of bottomed in and maybe we plateau at this level for some time do we need to get to like herd immunity to call a bottom or i mean is it just how does that recovery play out well herd immunity definitely is going to get people back in the cities get confidence back leasing activity the apartment buildings will fill up certainly the hotels will come back today there's many of the hotels are closed in these places and then the office buildings will take time i think what will happen is some companies will come back they'll find that wow this is good being in the office talking to the person next to me for culture for integration for us we view our business as a team sport the way we do it and i think that will lead more companies to come back into the office and that'll lead to a recovery so yeah i would be willing to make you know bets certainly around these urban centers and buying assets at prices that are down from where they were prior to the crisis are you going to be buying a house in miami like everybody else i don't have any plans today to do that but i think miami's got a lot of got a lot of tailwind we actually chose miami as a second location for our tech group when we were looking for another location that had good quality of life and we could attract diverse talent and miami really hit the radar for us and we decided to set up an office there it doesn't mean we're moving from new york but we are going to have more people down there in the tech space we think that's a good thing for our business over time we're obviously as a firm growing fairly rapidly well this actually ties into the next question from the audience um the question is what are the top three investment opportunities the pandemic has thrown up which i think is a pretty funny way of phrasing that um are there new areas of investment that we might not otherwise have paid attention to miami was already a thing but it became much more of a thing um but it is a good question something that has happened that you weren't expecting well i think the biggest thing is the acceleration of these technologies we talked about which is um you know sort of the zoom world we're living in um i by the way climate would be a great example uh people had talked about the risk for vaccines for a long time uh the risk of a pandemic the need to create vaccines that need to be prepared and and we ended up as a society around the world paying the price and i think this has now created more urgency around climate so i think there's been a real acceleration in that area back to my earlier comments clearly sort of this movement from offline to online of almost everything we do in our daily lives i think will continue and accelerate um you know i think it will also accelerate things like digital payments in a huge way i mean something like 77 percent of transactions globally are still done by cash uh and check and when you throw in credit cards you know digital payments are a tiny percentage we've all learned we can pay for lots of things doing this i think telemedicine is probably the biggest winner or one of the big winners coming out of this before because of privacy rules you know healthier insurers and doctors everyone was nervous now so many of us are having doctor's appointments that's an area so again i go back to what's changed in our lives we're probably less likely to watch movies in a movie theater we're more likely to now stream that what's become a permanent sort of acceleration and secular change as opposed to something that's cyclical on the flip side i think you know how many pet houses how much soup can we make at home there are some activities you know cooking um or eating out had been you know climbing for 30 years and then we've seen this massive decline in huge surge in home cooking that's probably not going to continue and so you want to try to separate the sickle the cyclical from the secular and if you identify those trends find attractive ways and one other thing i'd say about that is some of the on theme trends are very expensive in the public markets today and what you love to do is find things that are sort of one derivative off something in the supply chain could be compliance related to that growing trend that's a way to play these things it's not necessarily the direct software or app itself that's such a good point um we only have like a minute and a half left and i did really want to get uh to climb it because something that we might see from bite administration would be more clarity on like what esg actually is and better disclosure from companies which would help investors like you um and i'm just wondering like what it's been so popular and we talked about how some of like the solar stocks really ran um into biden what is that derivative right now in the climate investment story well it's for us it's obviously looking in the private market so finding companies particularly growth companies that need capital um companies the battery space we really like uh we invested in a company out of our energy fund we we've invested in some companies doing things around building management systems and energy efficiency and then there are folks that are in that supply chain manufacturing some of this i would also throw in their utilities if you think about utilities today what they do is mostly off of hydrocarbons still many of them rely on coal over time they're going to have to invest significant capital to become green and they get a guaranteed return on that capital they invest and so that's an interesting derivative play to what's going to come we think in renewables oh really good point um do you think that biden needs to sort of lay out some more clarity on what disclosures are and definitions like would that help you at all well i think you've got to give the administration a little bit of time they've got a lot in front of them the crisis the pandemic is obviously a massive issue i think they're very focused they've got a number of people in the administration who've commented on this area uh the president himself has made a number of very strong statements i'd expect that there'll be more and and i'm sure it'll be around all sorts of things in energy efficiency new building standards i think this is coming really not only here in the u.s but around the globe we're seeing it and this is a mega trend and as i said hydrocarbon usage will go down it's not going away it's going to take a long time and that energy infrastructure will stay but as investors you want to think about how can i benefit from this coming transformation

Channel: Bloomberg Live

Views: 5,291

Keywords: Bloomberg

Id: _9DqacdGDOE

Length: 20min 32sec (1232 seconds)

Published: Thu Jan 28 2021