Companies will diversify their supply chains, says Blackstone’s Schwarzman
Stephen Schwarzman, the Chairman, CEO and Co-Founder of Blackstone, believes that companies will respond and diversify their supply chains, with the coronavirus lockdown exposing risks that previously might not have been factored in.
Such has been the severity of Covid-19, countries have been forced to close their doors over the last few months, with China leading the way back in January.
Speaking on this week's Bloomberg Invest Global digital summit, Schwarzman said that China was so good at manufacturing and establishing effective supply lines that for a number of companies, who couldn’t get supplies due to China being closed earlier in the year, it was a scary prospect.
This has caused global businesses and governments to re-think their supply chains.
“I think companies will respond and diversify their supply chains. Meanwhile, I think China will continue to grow and internalise its markets (and reduce its exports) at double or triple the rate of Western economies but the mix will be different,” commented Schwarzman.
He added that China’s decoupling was a very unique situation. After all, the US and China represent approximately 40 per cent of the global economy. Any decoupling that ensues is going to have clear ramifications.
Much will depend on how trade negotiations develop between the two superpowers. When asked this question, 51 per cent of Bloomberg’s audience felt that the parameters of the trade deal will be changed and agreed.
Acclaimed economist Nouriel Roubini, who also spoke during Bloomberg Invest Global, anticipates that the cold war between US and China “will get colder” with all aspects of the economic relationship set to be impacted, leading to de-globalisation and a decoupling of China’s economy relative to the US.
Schwarzman though, was sanguine on the future prospects of the US economy. He noted that while the country is running a massive deficit and has super low interest rates, “we’re doing everything we can to promote growth so I’m not worried about US growth on a longer term basis”.
He stressed that the quality of education in the US needed to be addressed and perhaps needed a re-focus “because this is what provides the underpinning, in a post-industrial age, for vibrant economies”.
For major global investment firms like Blackstone, which invest across geographies and asset classes, picking out themes and trends that will support the next pillar of global economic growth, occupy a great deal of time and consideration.
If there is a systemic disruption of some economic verticals, how will this play in to how global investors pick the right companies to back and support?
In Schwarzman’s view, the quality of management at a time of disruption is more key than it ever was. If one has a relatively stable position in the market, management can be good not great and life goes on because they are either patent-protected or process-protected.
“But in a world where everything appears to be challenged, whether you are the disrupter or the disrupted, the quality of the people managing and reacting to that change takes on a completely different amount of importance,” he said.
This plays to the idea of only hiring A team players, as Schwarzman explains in his book What It Takes: Lessons In The Pursuit Of Excellence.
With so much of the global economy going through a shakedown in recent months, knowing which companies to back and hiring the very best talent to push through and effect change for long-term success, will continue to separate the best investment firms from the rest.
Schwarzman alluded to a couple of themes that might signal how Blackstone intends to respond to the disruption caused by the pandemic and disruptive trends that were already gaining momentum. For example, Blackstone currently owns 1 billion square feet of warehousing space, having spotted changes in the retail consumer mindset over recent years; something that is likely to continue accelerating as people embrace online shopping.
“The pandemic has accelerated trends that might have taken five years, and made them happen in three months,” said Schwarzman.
Another important area of investment for the firm lies in life sciences, particularly as the world looks for a Covid-19 vaccine. Moreover, the pace of technology innovation in the life sciences sector makes it a vibrant area in which disruptor-type technologies and applications are emerging.
Much has changed in recent months. If anything, some of the bigger thematic trends that were beginning to shape our world before the pandemic have been brought into even sharper focus.
For global investment firms, being able to back exceptional management teams in this period of change is going to take on even more import than ever before.