Blackstone Thinks Subprime Is Near a Bottom

Few in the markets or the economy today have not felt a sting from the subprime mortgage meltdown, from homeowners to giant investment banks. Yet some firms bet early against these risky home loans, reaping big profits in the process.

Now one of these apparently prescient bears, the Blackstone Group, may be seeing light at the end of the tunnel. Not only has the alternative-asset giant been covering its bets against subprime, according to its president, Hamilton E. James, but it has been actively seeking to buy these assets.

“Our bet is that we’re near a bottom,” he said on a conference call with reporters.

Blackstone began betting against subprime in 2006, just as many home loans began experiencing trouble — though firms like Merrill Lynch and Citigroup continued to dive into the mortgages.

But the firm began covering its short bets late last year and early this year, Mr. James said. Now the firm has started going long on subprime through a variety of its businesses, he said, including its fund of funds unit and its credit hedge funds.

Blackstone also took a minority stake in Bayview Asset Management, a mortgage financing and servicing business, which Mr. James also described as a long bet on subprime. Bayview, which manages a $2 billion fund dedicated to mortgage loans and mortgage-backed securities, has earned a profit every year since the early 1990s, he said.

Merrill’s sale of about $30 billion in complex mortgage securities known as collateralized debt obligations — sold to another private equity firm for 22 cents on the dollar, with heavy financing — was a matter of the troubled securities firm being forced to sell, Mr. James said. The purchase by Lone Star Funds was a smart one, he added.

To be sure, that doesn’t mean that he thinks the greater credit market squeeze will end soon. Mr. James said that regional banks will continue to suffer from subprime auto loans, construction loans and home equity loans. Leveraged loans, or those made to private equity buyouts, continue to trade at a discount to their face value. (Blackstone has taken advantage of that, buying billions in those loans at a discount from Citi and Deutsche Bank, with financing.)