Editor’s Note: This is Part I of the series, “Where The Most Successful Funds are Investing” – my latest research on where Wall Street’s elite are deploying their capital. Stay tuned for Parts II & III later this week, where I’ll be breaking down the latest action from PE giant’s KKR and Apollo.
Introduction
Longtime readers of mine know that I believe tracking what the best Private Equity (PE) funds are buying and selling is one of the easiest, surefire ways to make money in the markets.
Tracking what these firms are buying gives you a snapshot of what the very best investors in the world believe will outperform during the market cycle.
Private Equity funds earn high returns by buying assets that are unpopular, holding them for years, and selling them to the momentum-minded herd. These firms look at thousands of companies in the course of a year and narrow the list down to those that they think are priced cheaply enough to offer significant returns.
With current markets trading at more than double the pandemic lows and the economy showing signs of heating up, knowing where the money is going could be more valuable information than ever before.
Charlie Munger once said, “Take a simple idea and take it seriously.”
This is a simple idea. We are going to invest alongside the very best investors on the planet.
This series is my attempt to steer investors in the right direction and to provide actionable investment idea’s isolated from the crowd.
Part 1: Blackstone
Earlier this month, one of the largest PE companies, Blackstone (BX), reported earnings and gave us some insight into what the top-performing alternative investment fund is doing with the cash investors have given them to manage.
Most of what you will read online about the earnings is about Bumble and Oatly going public, and although these led to great returns for Blackstone and it’s investors, they don’t necessarily help us understand what the future holds.
To do that, we need to dig deeper…
Real Estate
One of the biggest areas Blackstone is targeting right now is real estate. They favor residential and industrial properties and have also opened a new fund devoted exclusively to life sciences properties.
President and Chief Operating Officer of Blackstone, Jon Gray, also specifically highlighted logistics and housing on the earnings call, telling analysts that:
“I would tell you that in the logistics and rental housing spaces, which represent the bulk of our portfolio, I don’t think we’ve ever seen fundamentals on the ground better.”
When asked about logistics properties in Asia and Europe being attractive opportunities as those economies begin to recover, Gray said:
“It’s super repeatable, and it’s being done in scale. I don’t have the exact numbers. But I think about half of our warehouse portfolio, which is over $100 billion… is outside the United States… Europe is a huge chunk of assets. We’re growing in Asia, it’s the same story everywhere, which is as retail moves increasingly online, there’s more demand for warehouses, particularly last-mile warehouses. And so, we’ve been the biggest buyer in Europe. We’re active in China.”
Due to hearing this, I am looking for a pure-play on international warehouse and logistics space, and when I find it, you will hear about it.
The firm is becoming somewhat more growth-oriented in its approach to Private Equity. Blackstone has been focusing on areas like renewable energy and the electric grid, which is an area that I also think has tremendous potential.
In line with Gray’s comments about rebuilding the grid, Blackstone recently purchased Sabre, a designer and manufacturer of overhead steel poles, towers, battery storage solutions, and related services for electrical utility and telecom end markets.
These components are critical to modernizing and strengthening the US electrical transmission and distribution grid, safely and efficiently interconnecting rapidly-growing renewable generation capacity and battery storage facilities into the grid. As a bonus, these components are also being used in the ongoing rollout of 5G in the United States.
Blackstone also remains heavily committed to infrastructure. Although their fund is a few years old, they could get a massive boost from the current infrastructure proposal rolling around the halls of Congress.
Blackstone’s Bet on Internet
Looking at the deals Blackstone is doing right now is also instructive.
Blackstone Tactical Opportunities and Blackstone Infrastructure Partners just agreed to invest in the privately held company, Hotwire Communications, a leading fiber-to-the-home provider in the United States. Hotwire has a 100% fiber network that delivers high-speed internet service to high-rise multi-dwelling units, gated communities, and homeowners’ associations across Florida, Georgia, and the Carolinas.
A senior managing director at Blackstone, Greg Blank, pointed out that Hotwire fits into two of Blackstone’s biggest themes: data proliferation and consumer connectivity.
I like both of the sectors and will be watching Blackstone’s SEC filings for any indication of activity in public securities in these businesses that we can steal.
Cybersecurity Continues to be a Focus
Blackstone Growth also invested in Vectra AI, a leader in cybersecurity threat detection. The funds will be used to strengthen Vectra AI’s position as a market leader in AI-driven cloud security.
AI-Driven cybersecurity is a huge opportunity. I have not been able to push myself to buy shares of CrowdStrike (CRWD) yet due to its massive valuation, but its AI-driven cybersecurity platform is impressive.
Blackstone’s Huge Bet on India
Blackstone also continues to expand internationally through its investments in India. The fund just invested in Mphasis, one of the leading providers of Information Technology (IT) Services specializing in cloud and digital solutions. To be blunt, the market for cloud computing in India will be enormous.
Actually, the market for everything technology-related in India will be enormous.
Unfortunately, right now, the two India closed-end funds I follow, The India Fund (IFN) and the Morgan Stanley India Investment (IIF), are underinvested in technology, and the discounts to Net Asset Value (NAV) aren’t anywhere close to where I want them.
Blackstone is also the largest owner of office buildings in India and has half of its portfolio leased to global technology companies.
One of the only ways to play this trend currently is through Brookfield Asset Manager (BAM), which has an Indian REIT, but it’s not easy for US investors to buy shares. I would love to see a US listing or American depositary receipt (ADR) that allows us to buy into the Indian office markets at a reasonable price.
Successful Follow Along Investing
Logistical real estate. Multifamily housing. Artificial Intelligence. Cyber Security. India. The Electrical Grid. Broadband. Life Sciences Companies. Life Sciences Real Estate…
This is where an investment firm with a fantastic 35-year track record of success focuses its efforts right now.
For investors, it might be smart to follow along.
Best,
Tim