Central banks ‘will win this inflation fight’, says Blackstone boss Jon Gray

Wall Street’s $US1 trillion investor is preparing to move up the risk curve as it bets on a turning point in the recovery.

Jon Gray, the global president and chief operating officer of Blackstone in Sydney on Wednesday. He believes the US will start cutting interest rates later this year. Picture: John Feder

The head of one of the world’s biggest investors expects the US to start cutting interest rates from later this year, although he concedes the choppy battle to control inflation has been slowing the recovery process.

The comments by Blackstone president and chief operating officer Jon Gray, who heads up the $US1 trillion ($1.5 trillion) asset manager, come as central banks here and around the world have hosed down expectations around the timing of the next cash rate move, with inflation refusing to fall away.

Regardless when any cuts fall, Gray believes a turning point is nearing in what is shaping up as the great inflationary fight of this century.

“The (US) Fed and other central banks around the world are making progress. But as you’ve seen here, it hasn’t been a straight line down, and it’s slowed a little bit,” Gray tells The Australian in an interview in Blackstone’s Sydney office.

“We still think central banks are ultimately are going to be successful – they’re going to win. And it does take a bit of time for this to work its way through the system,” he says.

One of the most powerful figures on Wall Street, Gray has returned to Australia for the second time in just under a year. After the $8.9bn Crown Resorts buyout and billions in property and private credit funds here, Australia is becoming an important part of Blackstone’s global empire. At the same time, the deep pool of superannuation funds represents some of Blackstone’s biggest clients, with the Wall Street firm promising outsized returns over the long-term.

Blackstone paid $8.9bn for the under pressure Crown Resorts two years ago. Picture: Chris Pavlich

Gray acknowledges the market expectations around interest rates have moved dramatically in just a few months, particularly around the resilience of the US economy. But he says the US Fed has become more data dependent than many in the market give it credit for.

So too it can afford to be patient with central banks around the world – including Australia – likely to be reluctant to get too far ahead of the US Fed and start cutting cash rates.

“I think the Fed will have air cover to cut rates at least once this year … But I would say that the pace of disinflation has slowed.”

His comments come as Blackstone has signalled it is again prepared to move up the risk curve in investment, with the asset manager again looking for targets across its key investment themes of real estate, private credit, green energy, infrastructure and specialised healthcare. Gray recently told investors he is sitting on a near record of $US200bn in “dry powder” ready to deploy.

As well as private credit which is increasingly taking on big banks, digital infrastructure – which includes data centres and specialist energy infrastructure – has been among the fastest-growing areas for Blackstone.

Indeed, the numbers are staggering. Blackstone today has $50bn in digital infrastructure under construction, and it has another $50bn under various phases of development all over the world.

Blackstone says the US economy has shown it is resilient. Picture: Getty Images

To give a sense of how quickly a ramp-up in digital has happened, that compares to close to zero investment just three-years ago. The growth represents the physical manifestation of AI, Gray says, with large language models relying on massive computing power inside the data centre, that all consumes a lot of energy.

“We’re not necessarily betting on who’s going to win the AI race, particularly among the big four or five tech companies who are fuelling this. We’re basically providing the infrastructure, the rails for them to do it,” he says.

Blackstone also sits on top of the largest portfolio of commercial property in the world, along with hundreds of billions in investments across infrastructure, healthcare and renewable energy.

In total Blackstone has $US339bn across real estate, $US310bn in private equity, with another $US412bn across debt financing and hedge funds.

At least with the interest rate outlook stabilising to falling, Gray expects the pace of mergers and acquisitions to pick up. Not only does this present more buying opportunities, for him this is important for Blackstone given a large part of its business relies on recycling or selling assets it has held or turned around.

“You’re definitely seeing a pick-up in activity,” he says.

“More risk’

Blackstone is also looking to get ahead of the economic cycle, with the Wall Street firm deliberately being more active around beaten down property and some technology assets.

“I think the risk when you go through a downturn – we saw this in the early 90s, a little bit in the early 2000s, certainly after the GFC, is everybody gets really cautious.

“But the riskiest period of time to invest money is 2000, in 2007, or 2021. Then it is fashionable to invest and take lots of risks, but you’re buying things at very-high prices; you’re believing flawless execution; you’re believing very-high compound revenue growth.

“And so when you’re in this period, after a downturn, prices correct, M&A volumes fall, people are more cautious. But generally, these tend to be better transactions.

“Instead of focusing on the glass being half empty, what you want to say is: ‘is there more opportunity here’.”

An explosion in AI has been fuelling demands for massive investment in data centres.

While it has operated for years in Australia, Blackstone came onto the radar of many in a big way when it bought the troubled Crown Resorts casino in 2022 for $8.9bn. A key part of the buyout talks was about winning the trust of Crown’s cornerstone shareholder, the multi-billionaire James Packer.

Under Blackstone’s ownership, Crown has undergone an intensive restructuring as part of efforts to win back the confidence of regulators with its licence in doubt in Melbourne and Sydney. Now that has been achieved, Gray says the focus is on improving the operational performance of the casino that has been feeling the brunt of a slowing economy. Gray says his long-term commitment to Crown remains unchanged and the rebuild will be “a multi-year journey”.

Private credit and property dominate Blackstone’s activity but Gray says he wants to do more in Australia, particularly around the energy transition, technology and infrastructure. And while a slowdown has set in, he believes the longer-term story is all about opportunity.

“I would just say about Australia generally, it’s been a tough few years. There was a long Covid period when you were separated from the world for an extended period of time. That was hard on this economy. The slowdown in China and some of the resource slowdown has been tough. The increase in rates is more painful here than the United States because of the transmission mechanism on mortgages. And so people are a bit cautious.

“We look at it from this long-term lens and say: ‘This is a developed country that’s growing its population more than 1 to 2 per cent. It’s obviously a very attractive place to visit and to live. It’s got rule of law, and property rights, there’s liquidity. There, all the things that are good, there’s a ton of talent there.

“If you have something that you think is long-term very good, but is facing near-term challenges, that’s the point in the cycle when you want to lean in.

“So our perspective on Australia? We have a lot of long-term optimism.”

Originally published as Central banks ‘will win this inflation fight’, says Blackstone boss Jon Gray