China Buys Stake in Blackstone
It was announced today that China will set up a state investment company in order to buy a $3 billion stake in the Blackstone Group, the US private equity firm. The stake will be less than 10% and the planned IPO of Blackstone will proceed unchanged. It has been rumored for quite some time that China was going to diversify away from holding US treasury notes in an attempt to be more aggressive and increase its ROI. However, few expected that China's first major move would be to buy a $3 billion stake of Blackstone. Most expected China to proceed cautiously, investing in blue chips stocks more like a pension fund. If China does have as large a risk appetite as this deal indicates, they could quickly become one of the largest investors in the world.
Today China has $1.2 trillion of foreign exchange assets of which $200-400 billion could be pumped into the new investment company. When China puts these assets to work they have the power to literally move markets the world over. The global liquidity boom is going to get another large shot in the arm. Chances are China will model their investment company after Singapore's state run entity - Temasek holdings. Temasek, which manages roughly $60 billion USD, was started in 1974 and has achieved an impressive investment track record. But, even at $200 billion China's investment arm dwarfs Temasek in size.
While the Blackstone deal may be a bit of a surprise to China observers this isn't a shocking move for Blackstone. Months before the IPO of Fortress Investment Group the company sold a 15% stake to Tokyo-headquartered Nomura holdings. So it makes sense that Blackstone would seek to do the same. The major difference is that 15% of FIG cost Nomura $888 million and <10% of Blackstone will cost China $3 billion.
The most interesting sub-plot in this is the role of Antony Leung. Leung is Hong Kong's former finance secretary, is an independent director of China's largest bank, is the former Asia chairman of JP Morgan and was hired by Blackstone in January to run its China business. It seems fairly clear that Mr. Leung paid immediate dividends for Blackstone in the negotiations leading up to the sale.
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