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Blackstone, the world's largest alternative asset manager, expects twenty twenty six to be its best year ever for IPOs. I spoke with the company's president and COO, John Gray on a wide range of topics, including concerns around private credit.
When you have this much noise in the system and concern it will result in investors potentially looking for liquidity, So it's not unreasonable to expect this will take some time to work through. The chem will be do the products continue to show resiliency. And what's nice is because the yields are high, in the case of our BBC b cred more than a nine percent yield, you can absorb losses and you have a very lowly leveraged structure.
So if you think about a bank that's typically call it twelve times levered, these vehicles for US less than one times levered. These vehicles can deliver a premium in performance as they have to liquid leverage loans. Investors will say, wow, these things are more resilient than I expected. They continue to deliver positive results and then this will ebb over time, but it may take a bit to work through well.
What's a bit is that like quarters years? What does it look like?
You know, it's hard to say. I would think it would be more quarters than years, but you'll have to see how the environment evolves. And obviously as base rates come down, that of course is a headwind as well from an absolute return standpoint, but not from a relative return standpoint.
Even with the fears in private credit, it has been capital markets and M and A and activity that has been extremely robust. And John, I think that would surprise a lot of people coming into this year, considering we've had the fears over AI disruption, still on trade and now war on our hands. What are you seeing in your portfolio companies or are there any stresses around energy costs and inflation?
What we've seen is remarkably strong. I mean, in Q one, our private equity portfolio had ten percent revenue growth, which was an acceleration from Q four and so yes, there are isolated companies, particularly in Europe, who are facing higher energy costs. Their natural gas has gone up quite a bit, which is very different than the United States. Some companies are still dealing with some terrif issues. There's slowness or
more challenges. I would say in mid and lower end consumer businesses, but in aggregate the picture is pretty good. And the big driver goes back to what we talked about at the beginning, This huge AI infrastructure room five companies spending seven hundred billion dollars in capital just US alone. We think this year our data center business that we could lease across all our platforms six gigawatts. Six gigawatts, to put in context, is almost one hundred billion dollars
of data centers. There'll be another couple hundred billion of chips put in by the hyperscalers. That's three hundred billion of aggregate spend. That's like the economy of Portugal or Finland. And so I think that tailwind to the overall economy globally, but particularly in the United States is powerful, which is one of the reasons why even as we have a shock like we're seeing with the war, we can continue
to power through. Our expectation is we'll see a pretty healthy economy despite these headwinds.
Those numbers boggle my puny, little human brain, so that you were laying them out. But as we see higher energy prices still the straight of hormous is closed. Gasoline prices go up. It's a market, and I know you're in private markets for a reason, but public markets are trading at all time highs. Do you think there is an element at which we are maybe a little bit too sanguine about wider risks and disruption from what's happening in the Middle East.
Well, I think the market has begun to develop a perspective because this is now the fifth time since twenty twenty we're in the first quarter of the year. We've had a shock, right COVID, which was obviously very big. We had the Russia invasion of Ukraine which created an energy crisis. We had Silicon Valley Bank which shook the
financial markets. We had Liberation Day which hit companies and markets, and now this And in each one of those previous experiences, the market traded off, people were highly concerned, and ultimately the returns the market were covered by the end of
the year. And so I think the market has now been conditioned a little bit to say, hey, we should have a bit of patient that there will at some point here be a resolution and we'll go back to underlying fundamentals, which again is a pretty healthy global economy and inflation away from energy prices generally heading lower in terms of certainly rental housing costs, labor market cooling, and then these big productivity gains which should be beneficial for
earnings growth and economic growth. So I'm not sure the market has it wrong. If the conflict escalates, and things could obviously change, but based on past history and the underlying strength of the US economy in particular, I think it's reasonable for the market to stay optimistic.
Related to this, John, is the year of the IPO. I know you said it to start the year. There are some question marks because of everything we're discussing, but given the resiliency, the fact that lift off, yes gets delayed, but it's back on the docket. Jersey Mike's also going to becoming public too. At this point, Can anything stop the Year of the IPO or is this a train that's just going to keep running?
Well, I would say I still think, as you noted, this is the year of the IPO. That prediction was not looking so good thirty days ago. But I think because of this strength in AI and three of the biggest tech companies in the world are likely over the next twelve eighteen months to go public. We're fortunately in our wealth vehicle investors in all three We have a number of companies. I can't comment on specifics that are on the docket that we think the market will receive well,
but what I'd say is there's really a bifurcation. There are companies that are in sort of the path of AI direct beneficiaries. The market wants more exposure to those companies. There are companies that are sort of AI unaffected, like our medline business which we took public at the end of last year, and medical supplies. There's a lot of enthusiasm for that. The one area where I would say it's much tougher is in those white collar sort of
job services areas. That's professional services, information services, software there, because the market has concerns about what the business model will look like over time, that's going to be tough for But the rest of that market's big enough that I think he can support a fair number of IPOs. We right now have nine of them filed globally in the US, Europe, and Asia. So we do think this should be our busiest year ever for IPOs at Blackstone.
My interview with Blackstone President and COO John Gray, and I got to say I mean, he was measured in both the IPO response and in just the idea of how they're navigating all of the software stuff. He was like, look, there is still more pain to come out there. We talked about Tom of Bravo's Medalia. He mentioned that they lost more than five billion dollars on the deal too, so he said, yeah, things look good, but not Tolebravo lost more than five billion dollar correct, not to be
very clear. Not because they bought Medalia for like six and a half and now it looks like they're ready to pass the keys.