Blackstone turns its back on Wall Street

Private equity firms are hunkering down in the face of a slowing economy and unfriendly debt markets. But Blackstone (BX) sees an opportunity to benefit from the troubles of the Wall Street banks that have made hundreds of millions of dollars arranging buyouts in past years. The firm is hoping to cut out the middleman in future buyouts by borrowing money directly from hedge funds, mutual funds and other institutions, Bloomberg reports. “We’re bypassing the banks,” Blackstone chief Tony James said at the Super Return conference in Munich.

The comments come as banks ranging from Citi (C) and JPMorgan Chase (JPM) to Merrill Lynch (MER) and Goldman Sachs (GS) struggle to rid themselves of a huge backlog of so-called leveraged loans taken on to fund earlier buyouts. Their efforts won’t be made easier if they lose out on fees tied to buyout deals, though it’s hard to imagine many deals happening soon anyway. “I think we are seeing a meltdown in the credit markets that has some life in terms of the downside left to it,” Scott Sperling of Thomas H. Lee Partners told Reuters. Downside is a concept Blackstone shareholders are all too familiar with, having seen their stock drop 55% from its highs since last year’s big IPO. But they’re on the right side of the ledger today, with Blackstone stock up 7%.