In a fourth-quarter conference call last week, the world’s largest alternative asset manager confirmed that it has gathered $11 billion to acquire companies in Asia following its second private-equity fund for the continent.
It raised $6.4 billion and will receive $4.6 billion from Blackstone global funds.
In this round of fundraising, investors were intrigued by Blackstone’s returns, its focus on sustainable investing (also known as ESG), and the company’s geographical diversification.
Despite swelling inflationary risks and geopolitical concerns, the company has been expanding its footprint in the region. Its first private-equity fund was concentrated in India, while the second endeavor will situate Blackstone’s investments across Asia-Pacific.
Blackstone confirmed that it is negotiating three deals in Australia, India, and Japan. It is also working on a potential agreement with a Chinese consumer firm and a South Korean business. The Wall Street titan also has real estate investment vehicles in the “pipeline.”
Over the last year, governments in the region, particularly the Chinese leadership, have clamped down on a broad array of sectors, particularly technology. But Blackstone is unconcerned by these actions.
“As the year unfolds, we’ll see very attractive opportunities,” said Amit Dixit, the Asia head of private equity.
“Government related issues play a little role in our decision making.”
The New York-based asset manager has an objective of managing $1 trillion by 2026. After a record $155 billion in the October-to-December period, the firm is inching closer to realizing this goal ahead of schedule.
“At our Investor Day, a little over three years ago, we shared our vision of reaching $1 trillion of AUM in eight years,” said Steve Schwarzman, chairman and chief executive officer of Blackstone. “We now believe it will reach $1 trillion of AUM this year [in] half the time we predicted.”
Goldman Sachs Banking on China
Goldman Sachs analysts have turned slightly bearish on the Chinese economy.
In a note last month, the financial institution warned that China could choose to stay shut for the rest of the year and possibly into the second quarter of 2023.
Since the fall, Beijing has adopted a zero-COVID strategy as part of efforts to contain outbreaks. This has involved quarantine requirements, hard lockdowns, and disruption to production, encouraging analysts to sound the alarm about a period of stagflation.
These conditions prompted Goldman Sachs to slash its gross domestic product forecast for 2022, warning that growing restrictions on business activity would weigh on growth potential.
“In light of the latest COVID developments—in particular, the likely higher average level of restriction (and thus economic cost) to contain the more infectious Omicron variant—we are revising down our 2022 growth forecast to 4.3 percent, from 4.8 percent previously,” Goldman Sachs analysts Hui Shan and a team wrote in a report (pdf) in January.
This might prompt Beijing to boost liquidity and ease credit conditions by cutting its reserve requirement ratio, the amount of reserves banks are mandated to hold.
Despite these trends, Goldman Sachs is also casting its investment and wealth management shadow over the Chinese market.
After becoming the second foreign investment bank to attain 100 percent ownership of Goldman Sachs Gao Hua Securities Co. Ltd., the Wall Street juggernaut plans to expand its wealth and asset management products to Chinese investors.
“The short-term focus on our China business will still be to provide Chinese clients with investment banking and investing services,” Todd Leland, co-president of Goldman Sachs for Asia Pacific, told Caixin. “At the same time, our investment in wealth management and asset management will increase. Although the base is not large, the growth rate will be very fast.”
He further revealed that the company’s private investment strategy will hone in on healthcare, corporate, and consumer services. There will also be a focus on environmental, social, and governance (ESG) investing.
Short-Term Loss or Long-Term Gain?
As China liberalizes its financial markets to generate more capital, a growing number of Wall Street firms are planting new roots or establishing a larger corporate presence in the world’s second-largest economy.
But has this been a profitable investment in 2022?
For the first time since the early days of the U.S.-China trade dispute in 2017, mainland equities have slipped into a bear market. The CSI 300 Index of mainland stocks tumbled to a 16-month low, and the MSCI China Index slid to a 21-month low.
In addition to slumping equities, credit-market contagion is widening and government bonds are sliding.
But Wall Street juggernauts, from BlackRock to JPMorgan Chase, say they’re not too concerned. They have become overweight in Chinese stocks, predicted notable gains this year, or are convinced that the rout is exaggerated.
In response to the recent downturn in stocks, market observers purport that the selloff has been overdone, making many Chinese stocks attractive.
“Although risks around the Chinese growth outlook remain due to the zero-tolerance COVID-19 policies and regulatory tightening, Chinese equity markets already reflect some of those risks, offer attractive valuations and continue to be underinvested,” Goldman Sachs strategists led by Christian Mueller-Glissmann wrote in a note Monday.