Prakash A. Melwani, chief investment officer of Blackstone Group Inc.'s private equity group, is guiding the investments of the firm's private equity business at a time of record gains in assets under management, expected slow economic growth and almost $72 billion in dry powder, which nearly doubled in the year ended Sept. 30.
Blackstone Group's private equity segment continues to be its largest business by assets under management, at $173.9 billion as of Sept. 30, its most recent filing with the Security and Exchange Commission shows. Blackstone is poised to continue that trajectory as executives look to invest its latest $26 billion fund — Blackstone Capital Partners VIII, the largest private equity fund ever raised — in very large transactions.
In a world in which investors are heavily invested in buyouts and still investing with firms they know, fundraising has been strong, up 38% year over year as of Sept. 30, its latest SEC filing shows.
To manage the growth, Blackstone added a new layer of investment executives in December for its Asian and U.S. businesses. Martin Brand and Peter Wallace, both senior managing directors, were promoted to the new positions of co-heads of U.S. acquisitions. Amit Dixit and Ed Huang, both senior managing directors, were promoted to the new positions of co-heads of Asia acquisitions. All four report to Joseph Baratta, senior managing director and global head of private equity.
Mr. Melwani's title and duties were unaffected by the move. He also reports to Mr. Baratta.
Mr. Melwani has been a private equity investor for 30 years and said he believes that private equity markets are functioning well right now.
Even so, he acknowledges that valuations are high. "Those valuations are high but are not irrational given the cost of capital right now, and the economy is solid," he said in an interview. "The thing to watch are imbalances."
The imbalances Mr. Melwani said he sees today are in the public markets — in particular, the low government bond rates and negative interest rates in Europe.
"I don't see private-sector imbalances," he added. "I don't see an imminent recession given there are no obvious imbalances such as housing in the last cycle."
Mr. Melwani said he has been through four cycles in his career: the 1987 stock market crash, the 1990 savings and loan crisis, the 1999-2000 dot-com correction and the 2008 Great Recession.
"High yield was the first market to do silly things," he said. The high-yield bond market crashed in 1987, leading to the bankruptcy of investment bank Drexel Burnham Lambert. Junk bonds had fueled highly leveraged buyouts in the mid-1980s, but the party stopped when managers moved money into cash due to rising short-term interest rates, Pensions & Investments reported at the time.
These days, private equity firms are doing a better job of parsing between debt of high-quality and low-quality companies, he said.
However, he said he expects valuations to remain high in 2020. "With high valuations, you can't just be the money," Mr. Melwani said. Private equity managers also have to improve a company's operations.
"We want to earn midteen-type of (private equity) returns, and you have to create alpha."