Blackstone Group CEO Stephen Schwarzman says that he expects PE firms to outperform most other financial services firms.
Schwarzman, speaking at the annual Merrill Lynch banking conference, said that private-equity firms do particularly well during recessions, according to FinancialWeek,. He referenced the 1990-91 recession, where he said that despite the lack of credit, the average PE firm registered returns of about 30 percent. Similar returns were seen during the most recent recession, from 2001 through 2004.
“And where do we find ourselves today? We find ourselves in another recession, and we find remarkable investment opportunities,” said Schwarzman.
According to data from PE research firm Preqin, the median return for buyout vehicles in 2001 was 28 percent, while top-quartile funds that year took in at least 44 percent. Similarly in 1991, the median buyout return was 25 percent, with the top quartile starting at about 35 percent, according to FW.
Schwarzman believes that the financial system will return to normal lending patterns by 2011.
Schwarzman’s optimism was counteracted by Merrill’s CEO John Thain, who said he believes the economic environment will continue to be difficult for some time to come, likening the current credit crisis to the Great Depression.
Other PE firms are also rethinking their approach to leverage. Carlyle Group managing director Randal Quarles told FW yesterday that the use of leverage by homeowners and the financial sector was “completely unprecedented, and it is not sustainable.”