Blackstone’s energy investments
The Blackstone Group L.P. (BX), through its energy-dedicated fund and sector-agnostic funds, has made several investments in the energy sector. The investments have been in exploration, oil transportation, infrastructure with offtake agreements, merchant power, and renewables.
Blackstone has delivered an overall strong performance in the energy sector. Since 1997, it has generated an annualized return of 34% from its energy holdings. But with the price of oil on a downward slide, alternative asset managers have watched the valuations of their portfolio companies decrease at a rapid pace.
Rebuilding an energy portfolio
Blackstone offloaded much of its exposure to oil prices in 2013 and 2014. Overall, it has a diversified portfolio. Many holdings are oil price agnostic, which results in less erosion of the valuations.
According to Blackstone management, less than a quarter of the company’s energy exposure is impacted by oil prices. In the fourth quarter, Blackstone raised funds in its second energy fund in order to take advantage of the lower valuations in the sector.
Blackstone has outperformed in the energy sector compared to its peers in the alternative management space. These peers include the Carlyle Group (CG), KKR & Co. L.P. (KKR), Apollo Global Management (APO), and T. Rowe Price (TROW). Its peers also include other major players that form part of the Financial Select Sector SPDR Fund (XLF) and the iShares U.S. Financials ETF (IYF).
In our view, private equity firms usually find it difficult to offload their stakes during downturns due to illiquidity. But Blackstone has done good work with its energy holdings in terms of selling the stakes at the right time. It’s also an opportune time to make investments through Blackstone’s second energy fund.