Blackstone’s $4B Asian Fund: Pulling the Trigger too soon?

Blackstone’s $4B Asian Fund: Pulling the Trigger too soon?

The Blackstone Group L.P. (NYSE:BX), an American asset management group, has begun to ramp up its operations and scope of impact in Asia, focusing mostly on real estate investments. Now the company has announced the establishment of a $4 billion dollar fund to focus exclusively on real estate development in various Asian markets, including China.

Blackstone's $4B Asian Fund: Pulling the Trigger too soon?

With real estate investments and business opportunities declining in developed markets, investors have been pouring funds into booming emerging Asian economies. Blackstone’s move is just one of a number of increasing investments focusing on Asia, with international retailers, MNCs, and others continuing to ramp up their investments in the region.

The real estate market has been surging in recent years. While markets plummeted across Asia following the 2009 financial crisis, they quickly rebounded and made up lost grounds. Asia’s booming wealth is creating a fast emerging middle class that is demanding condos, apartments, and row houses. As Western markets stagnate, most Asian countries have continued to increase at a steady pace.

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Now The Blackstone Group L.P. (NYSE:BX) is looking to tap into the market, launching a $4 billion dollar fund to focus exclusively on Asia. This is twice the $2 billion that Blackstone had earlier announced. Of that, $500 million will come the State of New Jersey’s pension funds. With such a large amount of money, especially for investors like New Jersey, it’s worth stepping back to analyze the risks of the investment.

The move could be risky if The Blackstone Group L.P. (NYSE:BX) invests at the wrong time. Countries like Singapore, Malaysia, and China have long relied on strong-armed governments which maintain near total control over their societies. These governments will only continue to be supported so long as economic and living conditions continue to improve. With housing prices surging, however, middle and working classes have come under pressure. These people, in turn, are putting pressure on their governments to correct the situation.

China has rolled out numerous aggressive policies to deflate soaring housing prices. Singapore’s government has announced similar intentions, and numerous other governments have promised to address the issue. Markets have marched on in spite of  the efforts, however investors should still be wary. The political threat of rising housing prices is so great in many countries that governments will likely not relent on cooling off markets until they succeed. And if that should mean popping the bubble, investors should not be surprised if the Chinese, Singaporean, or any other government takes dramatic action to bring prices down.

Still, The Blackstone Group L.P. (NYSE:BX) has good reason to believe that real estate ventures will pay big dividends. If Blackstone times its investments right, it could likely cash in on government efforts to deflate the market. Asia is booming, with local domestic spending rising and urbanization advancing at breakneck speeds. Even if governments work to deflate housing prices in the near future, they will eventually start growing again. If Blackstone invests its money as the markets bottom out, the profits later on down the road could be tremendous.

The question of whether or not Blackstone’ investments will ultimately produce profits will ultimately rely on proper timing and patience. If Blackstone bides its time and waits for Asian governments to deflate housing markets, the profits could be huge. The Blackstone Group L.P. (NYSE:BX) has been gradually building up its staff and number of experts in the region, so the capacity to track and predict the market should be there. Still, there’s always a risk that someone might decide to pull the trigger too soon.

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