2/26/2019 Private Briefing: PE Giants Seed Credit, Infra Growth This copy is for your personal, non-commercial use only. To order reprints for distribution to your colleagues or clients please visit: http://www.thedeal.com/reprints-permissions/ or call +1 212-321-5070. PRIVATE EQUITY Private Brie ng: PE Giants Seed Credit, Infra Growth Blackstone, KKR and Carlyle Group touted enhanced business lines to Wall Street at the recent Credit Suisse 20th Annual Financial Services Forum in Key Biscayne, Fla. By Steve Gelsi Updated on February 20, 2019, 10:59 AM ET Blackstone's Joan Solotar When it comes to private equity rms, Blackstone Group LP (BX), KKR & Co. LP (KKR) and Carlyle Group LP (CG) rank among the largest in the world, with hundreds of billions of dollars in assets under management apiece and tens of billions in dry powder. While their empires already span multiple geographies and asset classes in private and public markets, though, the rms continue to see plenty of growth opportunities ahead, according to their remarks at the Credit Suisse 20th Annual Financial Services Forum on Feb. 12. While journalists were not invited to the event in Key Biscayne, Fla., The Deal reviewed transcripts of their comments touting fresh forays into credit, real assets and megabuyouts to excite prospective investors about their potential growth. https://pipeline.thedeal.com/article/14872263/index.dl 1/4 2/26/2019 Private Briefing: PE Giants Seed Credit, Infra Growth Executives acknowledged they faced rockier market conditions in late 2018 but emphasized the upheaval makes distressed investing more appealing. They also noted how their scale and presence in so many markets creates fresh investing opportunities in the face of market disruptions such as the pending Brexit. Carlyle Group touts lending Carlyle co-CEO Kewsong Lee, promoted to the job last year after working as managing director and head of credit, among other titles, said he sees ample opportunities to deploy capital in 2019. Lee played up the rm's potential role in opportunistic debt, distressed debt and special-situations lending as areas of growing interest. "It's fair to say, in general, the credit markets were ushed with capital over the past several years," Lee said. "Spreads were not as high as ... investors wanted them to be. But the recent volatility and the recent changes in [the] global macroeconomic outlook certainly make certain types of investing strategy in credit very, very attractive now for us." Examples he cited include opportunities in distressed debt and collateralized loan obligations, which may dip in 2019 compared with 2018. As a dominant CLO player, Carlyle manages about $20 billion in CLO assets. "Volume last year [in the CLO market] was just so huge you're going to see that come down," Lee said. "But given we're No. 1, No. 2 in the market, we will more than hold our own with respect to market share. And it's such an important element of the leveraged nance market. ... That business continues to do well. It's just that the industry volume had got to come down a little bit from the levels they were at last year." Lee said the CLO team has experience managing through downturns. "They've been through cycles," Lee said. "They've been through the Great Financial Crisis. Keep in mind, when conditions get tough and things get volatile in the CLO business, these are committed capital structures. They can go out and buy and replace existing assets with new repriced assets, which is more attractive. And so the whole notion of having captive and locked-in capital in these structures is very attractive as we hit upon more volatility and a potential softening in the macroeconomic environment." Carlyle also is ramping up its real assets by investing in energy, real estate and infrastructure with an eye on Asia and Europe. "Our infrastructure business is new," he said. "We're very pleased with the initial fundraising success and a few deals that we've announced. This could be a multibillion-dollar franchise for sure. And it's early days. ... It's a brand new business line, and it's off to a terri c start." Lee also touted Carlyle as "the most global" compared with its competitors. Looking ahead at capital raising for dealmaking, Carlyle expects to raise about $20 billion in fresh commitments this year -- roughly matching the pace in recent years. The fresh capital will back its European buyout fund, its second international energy fund and a longdated private equity fund. It's also raising money for its credit opportunities fund and considering whether to launch a new Carlyle Japan fund later this year. Blackstone reaches out to retail investors Joan Solotar, senior managing director and head of private wealth solutions for Blackstone, said the rm continues to work on expanding its retail investor network. It's growing its Blackstone/GSO Floating Rate Enhanced Income Fund (BGFLX) for high-net-worth individuals, which generates a 7% return and offers monthly liquidity to clients. Blackstone also is working on rebuilding its middle-market lending business via the Blackstone/GSO Secured Lending Fund after exiting its investment subadvisory relationship with Franklin Square Capital Partners for $640 million last year. https://pipeline.thedeal.com/article/14872263/index.dl 2/4 2/26/2019 Private Briefing: PE Giants Seed Credit, Infra Growth In terms of acquisitions, Blackstone is focused on logistical assets, U.S. housing and technology assets, as well as European and Asian buyouts. "We've been buying a ton of logistics assets," Solotar said. "We're probably one of the biggest owners of logistics assets in the world, and that's in U.S., Europe, Asia. We still like U.S. housing. ... We continue to like some of the growth-oriented businesses, cloud businesses, so technology has been an area of focus for us as well." Solotar said disruption around Brexit has helped rein in pricing for deals in the U.K. The rm has been buying up housing in Spain as well as crafting larger deals in Asia, where the rm tends to see "very little competition in scale deals," she said. She emphasized that Blackstone's ability to do large deals anywhere continues to set the rm apart since most new PE funds by smaller rms remain in the middle market. "You have not had a single newcomer to the large buyout pool in more than a decade," Solotar said. "The capital dedicated to that really hasn't grown. And so a lot of the transactions that we're seeing now are on a much bigger scale than we saw, maybe ve [or] eight years ago where it was more middle-market oriented. ... I don't know if you want to call that a sector, but I'd say it's a part of the market we like." KKR seeks top tier in real estate KKR CFO Bill Janetschek said the rm's real estate portfolio is around $6 billion but the largest PE players in the space now manage around $100 billion. "We've stated that we want to be a top three provider," Janetschek said. "We want to be everything to all things to all people. ... I think there is a very exciting long-term scaling opportunity for us, and that's really the focus." On the infrastructure front, meanwhile, KKR plans to ramp up its focus on Asia after growing the platform to roughly $7 billion in the U.S. and Europe. "We're ready to start deploying capital in Asia in infrastructure," he said. "We hired a small team right now proving concept, and over time the game plan is to raise a dedicated fund." Craig Larson, managing director of investor relations, added that KKR continues to embrace intricate transactions. "If you look at the large deals that we've done in 2018, they tend to be more complicated investments for us," Larson said. "You have large carve-outs that are complicated, where we look at the opportunity to improve those businesses at all different lines of the income statement. And that opportunity to take a big, developed business and improve it is the exciting thing for us." KKR is also building up its environmental and social governance platform, also called impact investing, to the tune of about $2 billion thus far. "These issues are going to be even more in the forefront both for lots of constituents including our LPs," he said. "It's an area that again is something that's very important to us." Join prominent executives and activist investors from CIAM, Severn Trent Water, State Street and Kekst CNC in London at The Deal's Corporate Governance 2019 Conference on Feb. 28 for networking and discussions on shareholder engagement. Gain insights into the latest trends in activism and corporate governance in Europe, perspective on the future of boards and analysis of the latest defense and insurgent strategies in the world of cross-border activism. Register today - Clients can save 50% by entering promotion code CGEURTD at checkout. For reprints of this story, please contact Jonathan McReynolds: jmcreynolds@thedeal.com This copy is for your personal, non-commercial use only. To order reprints for distribution to your colleagues or clients please visit: http://www.thedeal.com/reprints-permissions/ or call +1 212-321-5070. © 2019 The Deal. All Rights Reserved. Privacy Policy. View our terms & conditions and terms of service. https://pipeline.thedeal.com/article/14872263/index.dl 3/4 2/26/2019 https://pipeline.thedeal.com/article/14872263/index.dl Private Briefing: PE Giants Seed Credit, Infra Growth 4/4
