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Green energy transition is both risk and opportunity, Blackstone's Gray says

The transition to green energy presents investment opportunities, but it also poses technology and regulatory challenges, Blackstone Inc. President and COO Jonathan Gray said at the ongoing Bloomberg Invest Global virtual summit.

Investments in hydrocarbon exploration and production are down about 50% globally from 2014, Gray said. The private equity giant has committed $11 billion in recent years to solar, wind, water and other areas across the energy efficiency supply chain, he said, adding that his firm recently invested in Array Technologies Inc., which makes solar panels to track the sun.

But high reliance on hydrocarbons for energy use poses a challenge, Gray said. "As we bring the supply down, we have to bring on the supply of renewables at the same pace," which is something that has not been done yet.

SNL Image
Aerial view over solar panels and windmills.
Source: adamkaz/E+ via Getty Images

Gray noted that his firm took 12 years to get selected and approved for the approximately 340-mile transmission line to carry power from Québec to Queens, N.Y. The project is designed to reduce carbon emissions by the equivalent of 44% of cars being taken off the road.

"Governments around the world have to find a way to accelerate that process. Otherwise, we're going to end up with some acute shortages and we're beginning to see that," Gray stressed. There is ample capital available to deploy, but the pace needs to go much faster, as "consumers are likely going to feel the pain and the political will may abate a bit," he said.

Market outlook

Looking ahead, Gray expects a broad-based economic strength in the U.S. and globally post-pandemic, which could lead to more persistent inflation and could drive interest rates higher.

In a potentially higher-rate environment, the key is to invest in businesses that can do well in that scenario. "What you don't want to own is long-duration, fixed income, because there you're more vulnerable," Gray said.

In addition to green energy assets, Blackstone aims to increase its investments in e-commerce and life sciences: two sectors that have been accelerated by the pandemic.

Geographically, the private equity giant is looking at investment opportunities in markets that have "fallen out of favor," including the U.K. and China. The U.K. has faced supply challenges amid Brexit and then COVID-19, but Gray said he believes the market will "find its footing" and that it will remain a key spot in terms of financial markets and investment.

China should also do well in the long term, given its strong economic growth and entrepreneurial culture, and should create some opportunities, but "you have to be more selective," Gray said. As foreign investors proceed with caution amid increased regulatory scrutiny, consumer-facing businesses such as restaurants and leisure activities as well as interest rate-sensitive sectors such as real estate could create opportunities, the executive concluded.