How To Invest Like Blackstone

Today, I am going to teach you Blackstone's 7-part approach to investing and risk.

Blackstone is undoubtedly one of the most successful investing firms in the world, currently managing ~ $1 Trillion and no plans on stopping. They are the largest private real estate owner in the world.

Most people lack a firm structure when they make investment decisions. This leads to riskier investing.

By using this framework, you will decrease the risks left unaddressed and make better investment decisions.

Blackstone's 7-part approach to investing and risk

To start, let's envision you are seated at a long - rectangular board room overlooking Central Park.

The clock hits 8am on a snowy morning.

The door swings open.

Welcome to the Investment Committee.

1. Does The Investment Have Strong Underlying Qualities?

Strong qualities of an investment include:

-Adaptable: Able to adjust to changing circumstances

-Innovative: Capable of thinking well into the future and acting on new ideas

-Unique: Distinguishing features compared to competitors

-High Integrity: Is the business known for doing the right thing at the right moment?

-Brand Recognition: How do customers feel when they see an image of the brand?

-Good Financial Management: Strong balance sheet, healthy debts, sufficient working capital

2. Does the Investment Have a Quality Management Team or the Capability of Placing a Strong Team?

Strong qualities of a management team:

-Vision: Clear idea of where the business should go to succeed

-Communication: Ability to express the vision to all parties involved clearly and efficiently

-Culture: A place and environment people feel and perform their best

-Mentorship: Experienced professionals habitually share knowledge with others

-Calm in the eye of the storm: A firm hand on the wheel when things go awry

3. What Are The Likely Exit Strategies?

-Who is the potential buyer?

-What is the term of the equity capital?

-What is the term of the debt?

4. What Factors Could Reduce the Value of the Asset?

-Over levered: More debt than the asset is capable of servicing

-Fixed rate contracts in an inflationary time

-Change in political regulations: Rent stabilization, increase in tax rates, loss of employment opportunity are all factors to be aware of

-Natural Disaster

-Oversupply: Too much supply often leads to depressed rents

-Public Perception: Business practices that are bad for environment

5. What is The Ability of the Business to Service Debt in a Range of Economic and Interest Rate Environments?

-Does the deal work if interest rates go up 300 basis points (bps)?

-Does the deal salvage capital if the economy goes into a recession?

-How can negative economic factors be mitigated?

6. What Are The Macroeconomic Trends in the Relevant Geographic Region or Industry?

-Economic Growth: What is the forecast of the current economy?

-Exchange Rates: Does the currency suffer from traditional volatility?

-Demographic Trends: How does the age of the population, income, etc. impact business returns?

-Technological Advances: Is the asset class or industry undergoing drastic technological change?

-Environmental and Social Changes: Are current operations able to efficiently achieve future environmental/social standards?

-Political/Social Stability: Does the business reside in a location with a fair and stable government?

7. How is The Quality of the Businesses' Operations?

-Efficient: Is the operation maximizing the energy put into the operation for the output achieved?

-Scalable: Is there room to grow this operation?

-Sustainable: Is the current business process going to exist in 10, 20, 50 years?

-Infrastructure: Does the condition of the infrastructure require repair currently, 5 years, or 10 years?

-Location: Is the location of the operation in the path of growth or will it be left behind?

The goal of this process is to address each material investment risk that may reside in a potential investment.

I hope this framework will provide a structure for your future investing decisions.

Okay friends, that's all for today - hope you found Blackstone's 7-part approach to investing and risk valuable!

If so, it would be a great help if you could share this newsletter with anyone in your network that may find value in this.