The reopening of the US economy from the pandemic is setting up a contest between the most powerful investment firms on Wall Street.
Private capital groups including Blackstone, Apollo Global Management and Carlyle Group built up sharply different portfolios before and during the pandemic, putting billions of dollars to work even as the first wave of infections gathered pace last spring.
While the US Federal Reserve’s injection of trillions of dollars of new money into the financial system lifted the value of almost all their bets last year, their fortunes may now take divergent paths.
Some hope to benefit further from a resumption of normal life, having invested in airlines, car rental companies and travel agencies that could earn large windfalls if newly vaccinated Americans rediscover wanderlust after months of isolation.
Others believe they have spotted lasting lifestyle changes inspired by the pandemic, the effects of which will be felt for years in healthcare, retail and beyond.
Apollo used its $323bn credit division to plough billions of dollars into the travel industry last year, throwing a lifeline to online travel agent Expedia, helping Mexico’s national airline Aeroméxico look for a way out of bankruptcy, and providing financing for car rental company Hertz to buy 229,000 new cars.
“[Travel and leisure assets] were the things that were pressed the hardest, and as a result, valuations got impacted the most,” said Apollo co-president Scott Kleinman.
‘Covid has been an accelerant’
Apollo has structured some of its investments as debt instruments that rank ahead of shareholders yet do not require repayment according to a rigid schedule. It believes it is in line to profit from a recovery whenever it comes.
“There wasn’t a question about viability,” Kleinman said. “There was just a question about when. We did not need to predict whether it was going to be summer of 2021 or 2023. We bought good companies and helped them sustain themselves, and then whenever the economic recovery occurred, we would be successful.”
Other investors have staked their cash on spotting long-term changes accelerated by Covid-19 that they believe will reshape life for years to come.
“Covid has really been an accelerant for a lot of healthcare trends that we had identified several years ago,” said Stephen Wise, who heads healthcare investments at Carlyle, the $260bn investment firm.
In particular, Carlyle is helping to finance a transition to telemedicine, via companies such as One Medical, which provides doctor consultations and other medical services to employees at more than 8,000 companies and received investment from Carlyle in 2018. The company has been expanding ways for doctors to hold consultations via videoconference, mirroring the adoption in many workplaces of virtual meeting services such as Zoom.
“A trend that had already existed has accelerated with people’s inability to visit doctors’ offices during the height of Covid,” said Wise. “People have seen the convenience of that interaction.”
Wise also pointed to Ortho Clinical Diagnostics, which Carlyle spun out of US drugmaker Johnson & Johnson in 2014. The company makes antibody tests for coronavirus, and expects to benefit from the testing that will still be necessary after the economy reopens.
Its shares have risen by nearly one-quarter since its stock market debut in January. Carlyle retains a large stake.
‘Global cabin fever’
At Blackstone, lockdown tested the survival prospects of some of its live entertainment assets, which include the Bellagio casino in Las Vegas, the Great Wolf Resorts chain of indoor water parks, and Legoland owner Merlin Entertainments, which also operates dozens of Madame Tussauds wax museums and Sea Life aquariums.
Now the firm’s president Jon Gray is looking forward to an economic reawakening.
“I think as we get out of this pandemic, sometime over the summer [or] early fall, the paydown of credit card debt, the enormous increase in savings, and the global cabin fever is going to unleash an enormous amount of spending,” he told an interviewer in March. “On automobiles, on homes, on durable goods — and on travel like you’ve never seen.”
Blackstone is also putting money behind transitions that have been hastened by the pandemic, including physical assets whose value has grown along with consumers’ increasing time spent online. “We bought $100bn worth of warehouses, what we call the last mile” for ecommerce logistics, said Gray. “We love [media] content, so . . . in the physical world buying studio space.”
Beyond these bets, however, firms are also conscious that, with more than half of Americans having received at least one vaccine dose, the pandemic need no longer be the exclusive driving force behind corporate dealmaking.
In recent months, Apollo has announced a $3bn financing package for AB InBev’s US canning plants, acquired a major supplier of automotive parts, and bought a portfolio of online media assets that have been bouncing for a decade between different corporate homes.
“We have been looking at Yahoo for years,” said Kleinman, referring to the unit of Verizon Communications that his firm agreed to buy earlier this month. “[We were] convinced there was a way to unlock value in that business. I can fairly say that has very little to do with Covid.”