Celebrations at the close of trading in the Wheat Futures trading pit at the CME Group Inc.’s Chicago Board of Trade on the last trading day of the year in Chicago, Illinois, U.S. (Photographer: John Zich/Bloomberg)

Blackstone’s Gray Says He’s ‘Willing to Bet No Recession in ’19’

(Bloomberg) -- Blackstone Group LP’s Jon Gray said the rise in volatility is presenting opportunities as the prices of some asset classes like energy have dropped.

“Lots of assets have been repriced, this could be a more interesting investing” environment going forward, Blackstone’s president said at Bloomberg’s The Year Ahead summit in New York Wednesday.

Despite the decline in prices, Gray expects the U.S. economy to continue to grow next year.

“It is possible rising rates slow things down,” he said. The normal signs of what causes a recession -- banks leveraging up, commercial construction out of hand -- aren’t present. “I’d be willing to bet no recession in ’19.”

Blackstone, which has about $457 billion under management, expects to raise its biggest real estate fund ever. Earlier this month, Gray told Bloomberg that deploying capital later in the economic cycle is the single biggest issue for any investment firm in 2019.

Here are more highlights from the interview:

Europe

Gray said growth in Europe is challenged, which means interest rates are likely to stay lower. In the last few weeks, he said, Blackstone announced two large deals in the U.K., where the government is struggling with Brexit.

“In both cases we felt we were able to price in a lower growth environment,” Gray said.

Private Equity

Gray said the best buyout opportunities in public markets are for $3 billion to $20 billion companies because there is less competition compared with the market for mid-sized firms.

“The volatility, prices coming down is a bit helpful for us as we are looking for businesses,” Gray said.

Blackstone is adding more exposure in Asia, life sciences and growth equity even though that’s an area with high-priced companies.

Hedge Funds

Traditional long/short hedge fund strategies have struggled in the equity markets, said Gray. However, the hedge fund business "very much survives" and other strategies like quants and those that can deliver differentiated returns will emerge.

Long term, "the hedge fund business survives" but continues to evolve, he said.

Real Estate

While U.S. real estate is in the "more mature part of the cycle," Gray said he’s bullish on the residential market because there’s a shortage of housing.

Overall for 2019, Gray said he expects "flattish, very modest growth" in real estate. The firm expects to raise $18 billion for its new real estate fund, Bloomberg reported in September.

Credit

The most interesting opportunities in credit are in the private markets and floating rate debt, he said.

Blackstone’s GSO Capital Partners unit has rebuilt its business making loans to small and mid-size companies. The unit has plans to amass $10 billion of equity and debt capital for the effort into 2019, Bloomberg reported in July.

The C-Suite

The corporate executives he talks to are most concerned about scarcity and cost of labor, Gray said.

©2018 Bloomberg L.P.