BLACKSTONE made sweeping changes atop its credit unit as the private equity giant seeks to become a bigger lending powerhouse.

The firm is consolidating groups that invest in corporate credit and asset-based finance as well as a business that manages money for insurers under one chain of command. It promoted insurance chief Gilles Dellaert, 44, to lead the combined unit overseeing almost US$300 billion of assets – and set a goal to grow total credit assets to US$1 trillion within a decade.  

In a changing of the guard, credit head Dwight Scott, 60, will become chairman of the business. He’ll focus on key clients, the strategy for the division’s operations in Europe and formulating other initiatives. The firm announced the changes to partners on Tuesday (Sep 12).

Blackstone, led by chief executive officer Steve Schwarzman, is best known for buyout bets and iconic real estate investments. Using cash from insurers and yield-hungry investors, it has grown into a major financier in its own right, reflecting a changing balance of power on Wall Street as alternative-asset managers have edged out regional and money-centre banks as lenders.

The firm’s leaders predict that credit, which now accounts for about a third of assets under management, will grow faster than other business lines.

Knitting credit operations more tightly could make it easier for insurers, pension funds and other investors to tap Blackstone for a variety of lending strategies, executives said in interviews. The firm plans to create more multi-asset strategies – which can include everything from corporate bonds to asset-backed securities as well as complex loans. Meanwhile, it will help dealmakers provide flexible financing and price loans.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Blackstone shares rose as much as 1 per cent in morning trading. The stock dipped 0.4 per cent to US$112.05 at 10.30 am in New York.

Gray’s role

Since becoming president five years ago, Jon Gray has centralised investment processes and pushed to extend Blackstone’s credit platform further from its distressed-investor roots. His goal is to make Blackstone a dominant financing shop that can put money to work across markets.

Over time, the firm has shorn some of the sharp-elbowed investment styles it inherited from its 2008 purchase of GSO Capital Partners and morphed into a broader source of credit. The shift to chairman by Scott – who had been part of GSO before Blackstone bought the debt-investing firm – is symbolic of how Blackstone is leaving its earlier GSO roots further behind. He has played a major role in expanding the types of financing bets at Blackstone.

“We have been on a journey to build a performing private credit juggernaut,” Gray said.

Earlier this year, Blackstone hit US$1 trillion of assets under management. Now Gray faces a question: How can he reach the next US$1 trillion and continue growing a credit business that has already doubled over the past three years?  

The focus on scale has shifted how the credit arm invests.

Blackstone has originated more investment-grade loans for insurance clients. It expanded its reach in the business of loans backed by things such as solar panels and airplanes. It’s also the biggest overseer of collateralized loan obligations, managing and packaging bundles of loans.

“There’s no reason why these lines can’t be bigger,” said Dellaert, who expects “exponential growth” across credit businesses.

JPMorgan, Goldman

The executive, who grew up in a small town in Belgium and whose native tongue is Flemish, worked at JPMorgan Chase & Co, Goldman Sachs Group and insurer Global Atlantic before joining Blackstone in 2020.  

He engineered Blackstone deals to take stakes in insurers and struck agreements to manage their assets. These pacts gave Blackstone access to insurance money to fuel its lending.

Blackstone and other private equity firms benefitted from insurers’ hunger for higher yields and more complex wagers. It made a US$2.2 billion investment in American International Group’s life and retirement business, Corebridge Financial, in 2021 in exchange for managing more than US$90 billion over time.

Today, the firm invests roughly US$175 billion of insurance assets, most of it long-dated and investment-grade credit.

While Dellaert anticipates doing more asset-management deals with insurers and acquiring small stakes in such firms, he said Blackstone will stop short of owning an insurer or becoming one.

The asset manager has no plans to own more than 10 per cent of any insurer. That may avert greater regulatory oversight, and it could make it easier for New York-based Blackstone to work with a broader range of insurers because it is not seen as a competitor.  

‘Take risks’

Still, its growing presence in insurance and lending will draw fresh scrutiny to Blackstone’s rise.

State regulators have been examining insurance companies more closely to see how their balance sheets will hold up as interest rates climb, eroding the value of long-duration assets. They’re also debating whether the firms should face more capital charges for certain kinds of credit investments.

Gray said that rising interest rates and spreads will help Blackstone generate higher returns for clients.

Scott, the outgoing credit chief, acknowledges the business has changed as it has grown but that some of the original DNA remains.

“You have to have the creativity and willingness to take risks because it’s important to your clients and makes you a better lender,” he said. “But to scale a business the way we want to scale it, you have to move to on-the-run products.” BLOOMBERG