Blackstone attracts $17bn to latest fund

July 2015 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Private equity (PE) giant the Blackstone Group has secured $17bn of funding from investors in just seven months – the biggest first close of a fund ever.

Many analysts have suggested that the firm’s fundraising efforts are indicative of the optimism permeating the wider PE space. The new fund, known as Blackstone Capital Partners VII, is one of the biggest raised by the firm in its 30-year history. Before the onset of the financial crisis, Blackstone raised around $21bn for its fifth fund, however the hard cap for the firm’s seventh fund has already been surpassed with commitments in excess of $17.5bn. The firm is expected to continue to seek commitments from investors for its seventh fund, despite reaching the fund’s hard cap.

Fund VII is expected to invest in companies with enterprise values between $500m and $5bn. Blackstone executives expect to make 25 to 40 investments from the fund covering a diverse range of geographical locations, sectors and strategies from growth equity to development projects, midcap buyouts and large-cap buyouts. In order to help attract investors to the fund, Blackstone is offering economic incentives for large commitments and first-close participants. Investors can benefit from lower-than-market management fees, a standard carry, an 8 percent preferred return, and a 100 percent management fee offset, which represents a significant improvement over its prior fund, Blackstone VI.

Blackstone’s sixth fund raised $15.2bn and reported a net internal rate of return of 14 percent at the end of March. Blackstone VI focuses on real estate investments and attracted some of the world’s largest PE investors, including the California Public Employees’ Retirement System and the Canada Pension Plan Investment Board.

Irrespective of how the firm’s seventh fund develops moving forward, it is the largest PE fund to be raised since January 2014 when Apollo Global Management LLC completed fundraising for its $18.4bn flagship fund. New York based Blackstone is believed to have targeted $16bn for its seventh fund; the commitments thus far represent quite the boon for the firm.

In many respects, the impressive level of funding committed to the fund is indicative of the state of the wider PE industry. Indeed, firms globally are continuing to raise considerable sums of money from investors, and much of the capital committed of late has been collected in larger funds. In the last two years, PE firms have raised a combined $1 trillion from investors globally, according to data from Preqin.

Blackstone, which is one of the largest alternative asset managers in the world, with more than $300bn in assets under management globally, has been able to successfully attract investors to its recent funds thanks to the firm’s reputation of delivering strong returns for its clients. On 20 May, the firm announced it had sold a 25 percent stake in Irish telecoms company Eircom to US hedge fund Anchorage Capital Group. Once the sale has been completed, Anchorage will become the company’s biggest shareholder with a 33 percent stake. Blackstone, which took over the company in 2012 with a number of Eircom’s other senior lenders, will retain a 5 percent holding in the company.

Recently, Blackstone has made a number of acquisitions from its $3bn Strategic Capital Holdings fund. In May, the company acquired a minority stake in Illinois-based hedge-fund firm Magnetar Capital LLC. The deal for Magnetar is the third such deal that the fund has completed of late. The fund has also acquired stakes in Solus Alternative Asset Management LP and Senator Investment Group LP. Generally the fund takes stakes of between 20 percent and 30 percent.

Investors in Blackstone’s seventh fund reportedly include the New Jersey Pension Fund, Massachusetts Pension Reserves Investment Management Board, the Los Angeles County Employees’ Retirement Association and the Illinois Teachers’ Retirement System.

Richard Summerfield