Blackstone eyes Moscow, says U.S. LBOs pricey

NEW YORK (Reuters) - Private equity and real estate giant Blackstone Group (BX.N) said on Thursday it has established a small beachhead in Moscow as the company looks for other opportunities around the globe to invest its billions of dollars of "dry powder."

Plain-vanilla leveraged buyout deals in the United States are "pricey," Blackstone's chief operating officer Tony James told analysts on a conference call. He is instead searching for opportunities in energy, emerging markets and in providing growth capital to small companies.

Blackstone's international push saw it expand into Istanbul and establish a "small beachhead out of Moscow" during the first quarter, James said. Blackstone has one person operating in Russia, he said.

"We've been flirting with Russia for three years," said James. "I don't know how many times I've sat through traffic in Moscow to try to figure the place out."

James said the country is "a bit inscrutable ... but we're open-minded about opportunities there".

Still, James said it was important to be "very careful" in the country despite Russia benefiting right now from high energy prices.

"It is a market that is capital-constrained," James said. "Done right, it has potential to have some interesting returns, but we all have the obvious questions about the transparency."

James said he did not yet have an opinion on whether Russia's planned private equity fund will be an attractive way to invest in the country. Russia is wooing foreign money with a fund targeting high returns.

In the United States, James said with "traditional plain vanilla LBOs of size" looking pricey, the volume of opportunities is down.

Still, the decision by Standard & Poor's to put a "negative" outlook on the United States, threatening to downgrade the country's prized AAA credit rating within two years, has not changed his investment outlook.

"My (personal) view is it's a positive development," James said, of the S&P decision. He did not think there was "any conceivable way" the U.S. will receive a downgrade below AAA.

"If it's a wakeup call to people in Washington that this is a real problem that we need to focus on, it will be good for the long term," James said.

EARNINGS BEAT

Blackstone's first-quarter economic net income, or ENI, was $568 million, up from $360 million a year earlier.

Adjusted ENI was 51 cents per share, up from 32 cents a year ago and above analysts' average forecast of 41 cents, according to Thomson Reuters I/B/E/S.

Blackstone shares were up 0.7 percent at $19.13 on the New York Stock Exchange on Thursday morning.

ENI strips out items such as noncash charges for vesting equity-based compensation and the amortization of intangible assets. It is the measure that private equity firms prefer to report and that analysts follow.

The outlook for investment firms has improved as stock market values have risen and debt financing is readily available. During the quarter, Blackstone struck a $9.4 billion deal to buy nearly 600 U.S. shopping malls from Australia's debt-laden Centro Properties (CNP.AX), one of the biggest global property deals since the credit crisis.

Blackstone said the value of its real estate funds rose 8.7 percent in the first quarter, while its private equity portfolio rose 4.9 percent.

It has $16.9 billion of dry powder -- capital available to invest -- in its private equity funds, and $8.6 billion of dry powder in its real estate funds.

It has invested 82 percent of its $10 billion current real estate fund, Blackstone Real Estate Partners VI, and has started fund raising for its next major real estate fund.

Blackstone said earlier in the year that the new fund could be about the same size as the $10 billion 2008 fund.

Blackstone is the largest publicly traded private equity firm by market value, with a capitalization of $21 billion.

Kohlberg Kravis Roberts & Co (KKR.N), which listed on the New York Stock Exchange last year, has a market value of $12 billion, while Apollo Global Management (APO.N), which listed on the NYSE in March, has a market value of $6.6 billion.

Blackstone trades at the richest price of the three -- about 15 times its 2010 economic net income. That compares with multiples of 5.6 and 6 for Apollo and KKR, respectively, according to Reuters calculations.

Shares of Blackstone and KKR have risen 34 percent and 24 percent, respectively, this year. Apollo shares closed at $18.23 on Wednesday, 4 percent below their IPO price of $19. The Standard & Poor's 500 Index .SPX has risen 5.8 percent this year.

(Reporting by Megan Davies; Editing by John Wallace and Matthew Lewis)