NEW YORK Jan 30 Blackstone Group's
asset-light model may not fit with the potentially risky,
capital-intensive business of trading physical commodities, a
top executive said on Thursday, in comments that seemed to jar
with its interest in the industry.
Blackstone is one of three finalists in the running to buy
JPMorgan Chase & Co's physical commodity division, which
includes metals warehouses, a large global oil trading group and
gas and power deals. A final decision is expected within days,
industry sources have said.
Blackstone President Tony James did not directly discuss the
JPMorgan business, one of the biggest raw material operations on
Wall Street, but in a call with reporters offered rare insight
into the world's largest alternative asset manager's thinking
three years after it first started looking at diversifying its
revenue by getting into commodities.
"Our business is to manage other people's capital and most
of the successful commodities businesses are firms that are
based around having a strong presence in physical assets and a
lot of infrastructure. That provides some other asset management
or trading opportunities but you've got to be able to build the
business up," he said.
"That is inconsistent with the asset-light asset manager
model that we have."
His comments also touched on challenges that have pushed
some of Wall Street's biggest banks to retreat from the industry
amid razor-thin margins, rising capital costs and unprecedented
"I can't see us having a vast balance sheet with lots of
assets on our balance sheet. It's just not the way we are," he
"If you are in the physical commodities business and you
have oil spills and stuff like this, it's complex, so we are
trying to figure out - is there a strategy that is a winning
strategy in commodities that is compatible with us and what we
do well. I don't think we have got that figured out just yet."
JPMorgan put the commodities business up for sale last July,
while Morgan Stanley sold the bulk of its physical oil
business to Rosneft in December.
Blackstone is up against Australian bank Macquarie Group Ltd
and Mercuria, the Swiss-based oil trader.
The three bidders have never publicly commented on their
participation in the seven-month process. JPMorgan declined to
Some analysts said James' candid comments on the potential
hurdles also underscore how its rival bidders may be a more
logical and natural fit for the business.
"It is a big move away from Blackstone's core businesses,"
said Kris Tremaine, a longtime commodities trader and managing
director of Kimura, a commodities trade finance fund set to
launch later this year.
Macquarie has the deep pockets and roots in mining,
agriculture and energy, while Mercuria has ambitions to expand
further into commodities and industry know-how.
Neither would be under the regulatory glare that has pushed
JPMorgan to exit the business.