AMERICAS NEWS: Partial independence

Park Hill Real Estate has been a force in placement agency since 2005, and now it is to embark on a new chapter. On October 10, its owner The Blackstone Group announced a plan to spin off its M&A, restructuring and Park Hill businesses and combine them with Paul Taubman’s PJT Partners. The entity – which was yet to be named at press time – will become an independent, publicly traded company in 2015 in which Blackstone will initially own 65 percent, and Taubman, his partners, and Blackstone employees of the advisory business will initially own around 35 percent.

At the heart of the issue for Blackstone has been apparent conflicts of interest between its advisory business and investment businesses, which have impeded both. In a statement, chairman and chief executive officer, Stephen Schwarzman, said: “As the largest alternative asset manager in the world, and with our investing areas considerably broader and larger than even a few years ago, we have not been free to aggressively grow our advisory businesses further out of concern for potential conflicts. The separation of our investing and advisory areas will create new growth opportunities for both businesses.” Observers have commented that the conflicts issue have hampered growth, but they also noted a chasm opening up between the valuation of Blackstone as a publicly-listed alternative asset managers in terms of shares expressed as a multiple of future earnings compared to boutique advisory groups such as Evercore, Greenhill & Co and Moelis & Company. Blackstone trades at 9x to 10x projected earnings, while the Evercores of the world are closer to the 17x to 20x range.

The decision, however, does open a debate at least in the private equity real estate industry as to what this might mean for Blackstone’s fundraising capability and for Park Hill’s future success and talent retention. Sources said that in any given year when Blackstone is raising a fund, Park Hill would derive roughly 10 percent of its fees from its owner, so it is not dependent on the firm, though clearly it is a very important client. And Park Hill is said to contribute roughly 10 percent to 15 percent of Blackstone’s fundraise by helping bringing in fresh sources of capital to help the firm’s in-house team. The relationship appears solid going into the spin off as currently Park Hill is working for Blackstone on one raise, and will also be working on its next global real estate fund at the end of the year. Moreover, Blackstone will remain a shareholder in Park Hill’s new mother ship so it will want to support its investment, said those with knowledge of the situation. Meanwhile, Park Hill Real Estate will be looking to grow its opportunities further empowered by real estate M&A. Advising on joint venture asset deals for example or capital raising work for public property companies are on the cards. The franchise name might disappear but the team could continue.