NEW YORK (TheStreet) - Stephen A. Schwarzman, the billionaire co-founder of The Blackstone Group (BX) personally thanked Federal Reserve chairman Ben Bernanke for the private equity giant's stellar year.
Schwarzman said at the Goldman Sachs Financial Services Conference on Wednesday that about a week ago he thanked the outgoing Fed chair for helping Blackstone to a banner year.
"Now what happens when you have a year like this in finance, where, thank you Ben Bernanke. I saw him last Thursday, and I thanked him for your prosperity out in this audience," Schwarzman said referring to the crowd of financial services investors and Blackstone limited partners.
Blackstone has been able to realize strong investment gains in 2013 amid the Fed's continued policy of monetary easing, which has opened up IPO markets and allowed companies owned by private equity investors to to finance dividends or lower their financing costs. The world's largest publicly traded private equity firm has also seen billions of dollars in asset inflows as investors seek high-yielding investments.
"Overall this is a very good set of circumstances for us and I anticipate that is going to continue for some period of time," Schwarzman added of the prevailing economic environment.
Aside from Schwarzman's slightly off-the-cuff remarks, the Blackstone CEO and chairman also made substantive comments about the firm's expected investment activity heading into the new year.
Schwarzman said Blackstone is likely to make fewer new in 2014, given strong gains posted by broader stock market indices and still below-trend economic growth. Put simply, Blackstone may find that rising markets will make it harder for the PE-firm to find attractive new investments in the coming year. Still, Schwarzman expects Blackstone to be active, particularly in realizing investment gains on its existing portfolio.
"We are tipped more towards the realization side," Schwarzman said. Those comments echo similar comments from competitors in the buyout business. Earlier in 2013, Apollo Global Management co-founder Leon Black said the PE firm was selling everything in its portfolio not nailed down to the walls.
Subprime Auto Loans
Blackstone Group expects to become an increasingly large player in the auto finance market, Schwarzman said on Wednesday. Blackstone is an investor in Exeter Finance, a large player in the fast-growing subprime auto loan market.
"The returns are excellent... But now there is just a vacuum," Schwarzman said of the industry, in the wake of a post-crisis retreat from traditional lenders. Some ratings firms such as Fitch have raised alarms about the growth of the subprime auto loans and securitization pools.
However, Fitch, like Schwarzman, recognized that even though borrowers in the market have low credit scores, loss rates in the sector were relatively benign during the financial crisis.
No Way to 401k
The Blackstone Group head also took time at the Goldman Sachs conference to take a dig against competitors.
In particular, Schwarzman highlighted his belief that traditional money managers such as 401k mutual funds have seen their earnings and asset growth slow markedly when compared with alternative managers such as Blackstone.
Speaking to a crowd of investors in financial services stocks, Schwarzman questioned the stock market valuations of traditional asset managers when compared with their private equity brethren.
Firms such as T. Rowe Price (TROW), Federated Investors (FII) and Franklin Resources (BEN) trade at multiples of between 15-and-20-times their trailing earnings, while most alternative managers such as Blackstone trade at single digit multiples. Those valuations come at a time when firms like Blackstone are growing their assets a far faster rates, Schwarzman said.
"How do you grow half of our rate and have a multiple that is 80% higher?" Schwarzman asked. "When numbers are this far out of kilter, there is going to be a reassessment," he concluded.
Blackstone shares have gained nearly 90% in year-to-date. Shares in the private and alternative investment giant were little changed in Wednesday trading at $29.03 a share.
-- Written by Antoine Gara in New York.