Blackstone OK with Wall Street buyout units

By Joseph A. Giannone

NEW YORK (Reuters) - Investment banks Goldman Sachs Group (GS.N: Quote, Profile, Research, Stock Buzz) and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) have come under fire in the past year for pursuing private-equity deals, but a top Blackstone Group executive said on Tuesday the giant buyout firm has no objections.

"Yes, they're in private equity, but at the same time they can be very a useful source of opportunities for us to invest with," Blackstone President Hamilton "Tony" James said at the Reuters Investment Banking Summit in New York. "It's one of those two-sided coins. There's a negative aspect and there's a positive and you look at balance of that."

Goldman and other firms have drawn fire in the past two years as their private equity arms grew bigger and pursued ever-larger deals. These investments, which generate significant gains for Wall Street banks, occasionally put them in competition with buyout firms like Blackstone.

Outcry from these firms, which generate a large portion of Wall Street's investment banking fees, prompted JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) to exit or cut back their private equity businesses about two years ago.

But Goldman expanded, raising an $8.5 billion buyout fund and its deal activity soared.

Signs of strain between Goldman Sachs Capital Partners and Blackstone surfaced earlier this year amid a three-way bid with Apax Partners for British broadcaster ITV Plc. In another deal, Goldman Sachs joined a team competing against other buyout clients in a bid for Univision Communications Inc. UVN.N.

Yet these deals have not cost Goldman much in the way of business. For the first nine months, Goldman's investment banking net revenue reached $4.3 billion, more than all of last year.

James, who runs investment banking at Blackstone, said Goldman has done a fair enough job reining in its activities.

"Even if they're expecting to co-invest with you or occasionally compete with you, the net balance can still be a positive and we can live with that," James said.

To be sure, Hamilton said Blackstone would reconsider working with a bank that was getting in the way of buyouts.

"The smart ones have adopted a policy of co-investing with other sponsors, not just leading a deal right in on your face. If the latter happened it would be more of an issue. It would make us more reluctant to use (that bank), though it doesn't mean we stop altogether."

Goldman executives have defended their multiple roles, stressing the value they bring to buyout firms by suggesting deals and arranging financing. These services, the Blackstone executive said, makes it difficult to completely cut ties.

"For the most part, the Goldmans, Merrills and other firms very active in this area have struck a pretty good balance. They help us a lot. We co-invest with them more than we compete with them."

James also played down the competitive threat of a Goldman or Merrill, saying there are many hundreds of buyout shops.

That said, he joked "Would I like to see them roll back? I'd like to see them roll out of the private equity business."