Blackstone’s Gray: ‘You want to move before the all-clear sign comes out’

Private equity firms should look to deploy capital before interest rate cuts drive asset prices higher, according to Jonathan Gray, president and chief operating officer at Blackstone.

“As you see this cost of capital come down, that ultimately will have a beneficial impact on asset values,” Gray told Rich Melville, PEI Group’s US editorial director, on the sidelines of NEXUS 2024. “And so we think you want to move before that all-clear sign comes out. So, once rates start getting cut, once the asset prices move further up, it’ll be tougher to invest.”

Excluding add-ons, buyout investment value dropped 37 percent to $438 billion last year – the worst annual total since 2016, according to Bain & Co’s Global Private Equity Report 2024. Deal count also dropped 20 percent to around 2,500 transactions.

Transactions that depended on bank financing suffered the most as yields on large syndicated loans neared 11 percent in the US and 9 percent in Europe, the report said. This dynamic saw the number of mega-deals – those over $5 billion – almost halve.

Asset prices have dipped modestly as a result, according to the report.

Uncertainty around interest rates and inflation remains the biggest macro concern, Gray added. Companies and dealmakers may have to adjust to a prolonged period of high interest rates because the Fed may not cut rates as quickly as anticipated.

Private credit and other lending-related businesses will become attractive investments as interest rates stay elevated, Gray said, noting that M&A activity will gradually pick up as private equity firms and other institutions line up to divest from non-core assets.

“This feels like a transitional year,” Gray said. “Rates are still high. People are still finding their footing. But I would think you’ll definitely see a pickup in 2024 over 2023 in terms of transaction activity.”