From housing to the energy transition, the world is facing challenges that demand innovative solutions.
And private investment can play a big role.
The world’s largest alternative asset manager, Blackstone, doesn’t just look for sound investments, it identifies and invests in the industries of the future to help build a stronger Europe. This in turns helps spur job growth and drive progress.
From working to deliver 30,000 new affordable homes through Sage Homes, to funding the development of life-changing medicine through Autolus, Blackstone is investing in innovative companies across multiple sectors.
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What role does private investment play in supporting Europe’s economy?
Private investment plays an incredibly important role. Not only do we support companies when times are more challenging, such as during the pandemic, but we bring much-needed capital to fund sectors, like the development of lifesaving treatments for cancer, robotics, the energy transition and affordable housing.
We recently invested in a company called Esdec which was founded in the Netherlands and is supporting the acceleration of the energy transition by making it safer, easier and, ultimately, more affordable to mount solar panels on to buildings. We know the cost of transitioning to a cleaner energy future is something which requires investment and commitment from businesses and organizations, alongside governments.
We think that private investment can drive these types of changes, and hopefully Blackstone can become a model for the difference private capital can make to Europe’s economy.
How does Blackstone’s approach to investment differ from others?
Our investment teams focus on what we call high conviction themes. We identify the sectors that we think are integral to the future of the economy and require investment. We then make significant investments in companies in those areas. One example is our commitment to life sciences. Whether it is drug development, drug transportation, or building the state-of-the-art labs that scientists need to create the next lifesaving vaccine – we are focused on investing in this sector.
There is significant interest in how we can create high-skilled jobs in Europe’s economy. Through its portfolio companies, Blackstone supports 100,000 jobs in Europe. How are you approaching this challenge?
In some ways, that ties back to one of your earlier questions, which is that we provide much-needed investment for companies to grow. For us, job creation is one of our big barometers of success.
As we are investing in sectors we think will be integral to Europe’s future, we expect these sectors will grow and require more high-skilled jobs. For example, we have invested in a London based life science business called Autolus where they’re building a team of researchers to help find a possible treatment for rare blood cancers.
By investing in companies like Autolus and providing the capital they need, we can help create the environment and ecosystem for more jobs to be created.
Who is Blackstone investing on behalf of?
Our largest investors tend to be pension plans, supporting public and private sector workers across Europe and globally. Railway workers, postal workers, university academics, it’s a whole range of people who are saving for the future.
We need to make sure we do the best we can to generate the long-term returns that they need to have a secure retirement. We take this very seriously and it’s why we have such a rigorous investment focus and process.
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We are currently seeing a boom in investments in logistics across Europe. Why do you think this is?
The way that we live, work, entertain ourselves and shop is constantly evolving, and that directly impacts the economy and real estate markets. The e-commerce revolution has brought with it enormous incremental demand for high-quality and well-located logistics hubs. Whilst this may have become more noticeable since the pandemic, this trend towards e-commerce has been happening for many years.
Our approach to investing is to observe global trends and put those macro themes into a real estate investment context. This led us to focus on the logistics sector more than a decade ago. Today, we maintain that same conviction. Take goods bought online for example; they require approximately three times the amount of logistics space, on average, versus those purchased in physical retail stores. That is a very powerful driver of demand. Logistics is therefore one of the most attractive sectors within commercial real estate today with extraordinarily compelling fundamentals.
What are the current challenges facing the logistics industry?
Global supply chain issues are a major challenge everywhere, including for our tenants in the United Kingdom. To counteract these, businesses are looking to stock higher inventory levels and so they need to secure more space to store their additional goods.
Higher input costs such as labor, fuel and transportation are also major challenges for our tenants. The increase in these is leading logistics operators to try and locate their facilities as close as possible to their end customers, to reduce costs. Being in an urban location, even at a higher rent, makes a lot of economic sense for occupiers. This is because, ultimately, rent only accounts for approximately 5-6 percent of third-party logistics providers’ total cost budgets in the U.K., versus closer to 50 percent for fuel and transportation.
What do you think the future of logistics will look like?
Logistics remains one of our highest-conviction investment themes globally. We believe that urban distribution centers will become more and more sought after and valuable. This may also mean we may see more multistorey facilities in Europe.
We’re also likely to see the introduction of more automation in logistics facilities, such as robotics, and the integration and development of more digital solutions. This will all have implications for the need for power.
I also think that tenants, i.e. often our customers, will increasingly look to their landlords to help them meet their sustainability goals. This means investing in LED lighting, creating new electric vehicle (EV) charging points, and installing solar panels on the roofs of the logistics facilities, for example.
Why is logistics important to Europe’s future economy?
Logistics is a backbone of the global economy, allowing all types of business, from large brands to SMEs, to deliver their products to customers quickly and efficiently. As customers across Europe are exposed to greater and better choices, logistics is becoming an even more critical building block of that global supply chain.
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Europe is facing a chronic undersupply of housing. Why is that and how do you think it could be solved?
The under-supply of housing is actually a global challenge. If you take Europe alone, the data shows that there’s increasing demand for homes but a continued lack of supply of new build properties, making it harder for people to get on the housing ladder in the first place.
If you drill down into the U.K. specifically, the government set a target in 2017 to build 300,000 new homes every single year, but as of the end of September last year, only two-thirds of those homes were actually being built. In addition, there are currently over 1.2 million households on local authority waiting lists in the U.K., bringing into focus the particular need for more affordable housing provision.
The persistent supply-demand balance demonstrates that there is a role for Blackstone and other institutions to add value through supporting governments, and helping to address the critical issues around new housing supply by providing funding where it’s needed most.
What role is Blackstone playing in helping to solve this issue?
We play a vital role in helping to solve the under-supply of new housing across Europe via our portfolio companies. Our focus is always on creating high quality, sustainable, new-build homes and communities in locations where people want to live.
In the U.K. we have created Sage Homes, one of the first institutional scale, private providers and managers of high-quality affordable homes. And more recently we have launched Leaf Living, a specialist provider of professionally managed homes to rent within the private sector. Leaf Living aims to deliver 5,000 new-build homes in the coming years that will help address the need for more flexible family housing options.
Another example of us using our real estate expertise to support the longer-term creation of new housing is through the NEC Group, where we are working with the local council to generate thousands of new homes and community space on surplus under-utilized land in Birmingham, U.K., over the coming years. And it’s not only about creating new homes, it is also about renovating existing ones. In Europe, we’ve invested more than €180 million to renovate older, vacant rental properties and have been transforming them into sustainable new homes.
How are you driving sustainability within housing?
We are very focused on sustainability driving the energy efficiency of homes. In the Netherlands, we’ve renovated properties that are over 100 years old and have been able to improve the energy ratings of those homes to an A or B rating, which would have been typically a C or D rating.
We’re also focused on driving innovation around sustainability in housing. For example, our investment has supported U.K. house builders, St. Modwen, to build the first mass-built carbon negative homes in the U.K. This pilot has been capable of a 103 percent reduction in CO2 emissions compared to the standard home in the U.K. And it’s been predicted that it could save families around 50 percent of their energy bills at a time when inflationary pressures are causing a cost of living crisis.
Can you tell us more about Sage Homes’ work in increasing the amount of affordable housing?
Sage Homes is a prime example of how private investment can support a part of the housing market where homes are needed most – affordable housing. We’ve committed to providing over £4 billion of funding to Sage and to date we’ve delivered over 9,500 homes since we created the company in 2017.
The company is focused on making affordable rent and low-cost ownership available to as many people as possible, while providing high-quality homes and excellent service. Sage rents to those on local authority housing registers who have been identified as being in need of housing. The affordable housing sector is highly regulated, with the U.K. government setting rents at significant discounts to open-market levels. In 2021, Sage Homes became the largest provider of new-build affordable homes in the U.K. and has set a target to deliver 30,000 homes by 2030. Sage clearly shows that there is a role for investors in working alongside government to provide affordable housing for those most in need.
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Why should companies care about environment and social impact?
Climate change is the crisis of our time. We have under a decade to get our planetary carbon emissions under control. Those of us in business – especially global businesses – have more power to create value by fighting climate change than ever before.
Fortunately, we also know from our own experience at Blackstone that working with companies to make them climate smart, and to help get them on a lower carbon trajectory, helps make them more resilient and more valuable. This is why we partner with our portfolio companies to support them with decarbonization.
Global businesses also have an important role to play in driving forward innovative technologies that create energy using the Earth’s renewable resources. They can move quickly when a solution is promising. They can deploy capital in flexible ways to scale solutions across the globe. And, they can do all of this while creating well-paying jobs of the future.
What role can private investment play in driving action on climate change?
Confronting climate change will require massive investment. The world will need over $3.5 trillion in annual capital investments to reach net zero emissions. Governments around the world don’t have enough capital to fund this by themselves, so the private sector will be critical. Many of the solutions needed do not exist, and therefore we need private sector innovation, drive and scale.
At Blackstone, we’re proud of the role that we’re playing to help scale solutions across the globe. We’ve invested $16 billion in companies we believe are consistent with the broader energy transition since 2019, including in companies like DESOTEC in Belgium, which is advancing clean air, water and energy across a range of applications. And we see an opportunity to invest an estimated $100 billion in energy transition and climate change solutions projects over the next decade.
We are seeing companies approach sustainability in different ways. How is Blackstone approaching it?
At Blackstone, we seek to invest for the future by investing capital into companies and infrastructure that are creating the critical bridge from today to tomorrow. We need to do so with both an action-oriented short-term perspective as well as a perpetual or long-term perspective over many years to make companies stronger in the face of climate risk. Investors should seek to measure not only their greenhouse gases (GHG) emissions at a moment in time, but also the change in a company’s GHG under their ownership.
We have quantified our work on GHG Delta by setting a numeric target focused on actionable improvement over the short term. We have committed to a goal of reducing carbon emissions by 15 percent in aggregate for all new investments where we control the energy use over the first three years of ownership – a commitment that is informed by climate science.
Innovation is key to addressing climate change. How are you driving innovation in the companies you own across Europe?
We are driving innovation and creating value by assisting our companies in their efforts to decarbonize and become more resilient.
One example is Ainscough Crane Hire – we have been working with them to convert their entire fleet of cranes to run on renewable fuel, saving an estimated 15,000 tones of carbon dioxide a year. This is particularly significant given it’s a hard-to-decarbonize sector.
Another example is our U.K. company, The Office Group. We’re partnering with them to build London’s tallest timber office building. The Black and White building will be made entirely from cross laminated timber, resulting in 37 percent less carbon than an equivalent carbon structure would otherwise have.
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What are some of the most pressing challenges within life sciences right now?
The life sciences is an innovation business. The longer it generates innovation, the more products it generates, which all require funding in order to reach the patients.
It’s a business that has been around for 40 years. So, it’s relatively young compared with many others. The fundamental challenge for the industry is the balance between the number of products that are being invented and developed, versus the capital needed.
It’s very costly to develop pharmaceuticals. It costs about $2 billion during the lifetime and there are several thousand that are in development at any one time. What Blackstone does is to try to bridge that gap as best we can by selecting and funding what we think are the products that could have the greatest impact on patients.
There are also environmental issues, inflation and the volatility of the financial markets. Volatile financial markets means that companies have less of an ability to raise capital and equity capital. For us, we think we can manage the challenge because we focus on funding product development as opposed to funding companies.
How can private investment help address these issues?
We focus on products. For example, I believe there is no marker in science and medicine other than cholesterol that is a better predictor of disease. You cannot bring your cholesterol low enough; to get to zero would be wonderful. For the past 20 or 30 years there has been a pill that you need to take every day called a statins.
The problem is, half the people that start on this drug, at the end of the first year, end up staying on the drug. There’s a huge need for highly compliant drugs that, ideally, you’d take once a year.
There is indeed such a product. It’s called Leqvio®, which was developed by Alnylam, a biotechnology company in Boston, and it’s being marketed by Novartis, one of the largest pharmaceutical companies in the world. We’ve committed $1 billion to buy 10 percent interest in this product.
This is exactly what we like to do. Support the development of very impactful drugs that can impact thousands if not millions of lives over time.
How do you see this sector continuing to evolve in years to come?
The sector is exploding in terms of innovation. If I look back to when I first started in this business the thought of using a synthetic antibody was unheard of. And lifesaving drugs like Herceptin or half the drugs in the market today actually are antibodies, and the impact that they’ve had on diseases – these were dreams about 30 years ago.
It just gives you a sense of the trajectory of where we’re at today and the pace of development and innovation. It may surprise you that there are as many as 30,000 diseases that we know of. And we have cures for less than 500, so we have a long way to go.
You have been investing in life sciences for three decades. What are you most proud of regarding Blackstone’s work in this area?
I cannot imagine a more exciting business to be in. It involves innovation and exceptional people who are smart, accomplished and very motivated. The most important thing is the outcome. At the end of the day, you help people and generate a return for our investors. Building a building is one thing, and that’s very exciting, but, contributing to saving a life, there is nothing like it.
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