The US Federal Reserve will be a more powerful force over markets and deal-making this coming year than the increasingly likely chance of a bitter presidential rematch between Joe Biden and Donald Trump.
That’s the view of Jon Gray, who heads up one of the world’s biggest private equity managers at Blackstone, who has also declared the downturn in office tower buildings has bottomed, with expectations US interest rates will be cut through the year.
The comments from Gray, the chief operating officer of the $US1.04 trillion ($1.6 trillion) investor, provide some insights into how Wall Street is starting to think about the looming November presidential battle. With Trump barnstorming the Republican primaries, a rematch with Biden is on the cards.
Gray’s Blackstone is a major investor in commercial property in Australia and upped its exposure here significantly two years ago through the $8.9bn buyout of James Packer’s Crown Resorts, with the promised to rebuild the scandal-plagued casino empire. The latest quarterly update shows Blackstone has more than $US336bn in real estate and $US304bn across private equity. Total assets jumped 7 per cent in the December quarter.
“There’ll be obviously intense focus on the election, but I think it will not deter transaction activity, particularly if inflation keeps coming down and the Fed (Reserve) starts cutting interest rates. I think that will be more just positive,” Gray said told analysts during a quarterly update. Still he shrugged off the chances of political upheaval, pointing out Blackstone invests with an eye on the long term.
Many businesses are quietly war gaming the likely economic and regulatory landscape if Republican favourite Trump wins back the White House, or Biden secures a second term. A Trump presidency may see a return to protectionism and tensions again rise with China, although they are likely to benefit from lower corporate taxes. Trump too may attempt to dismantle Biden’s $US400bn green energy and strategic investment stimulus program, built around the Inflation Reduction Act. This will have a major knock-on effect for Australian companies, including miners with operations built around critical minerals and the likes of asset managers like Macquarie Group or the big industry super funds.
Gray says there would be some sectors which may be “more or less affected” but was not specific. However, he emphasised any big changes to policy will be moderated by who ends up controlling Congress.
“But I’d say transaction activity is going to be more tied to the Fed’s activities than the election. And for us, it’s taking this long-term approach, but also keeping an eye on areas that are more sensitive politically.
“Overall, if we think it’s a good time to deploy capital, we’re not going to let the election prospects dissuade us.”
The comments point to a pragmatic approach with business prepared to work with anyone who controls the White House, regardless of the volatility.
Gray, who was in Australia last June, didn’t comment on Crown during the call, but said Blackstone has $US200bn of dry powder ready to invest, including for renewable energy projects globally. He also called a bottom to the deeply stressed commercial property markets, particularly office towers, with the chances of the US Fed starting to cut interest rates this year. Helping property is a sharp slowdown in new commercial construction activity. Investment markets too would benefit from a lower rate environment.
While Blackstone has a sizeable office tower exposure, it has been skewing towards logistics, student housing and data centres in recent years.
“We believe we’re now heading into a better environment, with inflation and cost of capital headwinds moderating,” Gray said. “Things can change, as we saw last year … but as we sit today, we feel pretty good.”
johnstone@theaustralian.com.au
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