Firm: The Blackstone Group
Fund: Blackstone Capital Partners V
Amount Raised: $15.6 billion
Legal Counsel: Simpson Thacher & Bartlett
Placement Agent: Park Hill
The timing and amount couldn’t be more suggestive. Following a process that extended throughout 2005 and more than half-way into 2006, The
The seemingly arbitrary amount raised eyebrows among marketwatchers who are well aware that
Blackstone has already made a number of investments out of the fund, including deals in Dutch media company VNU, Michaels Stores and Cendant’s Travelport unit. The fund truly has an international feel, as investments so far have occurred in Germany, the U.K., India and the Netherlands, as well as in the U.S. The firm is also rumored to be attempting a £4 billion takeover of U.K.-based Argos Retail Group—reportedly pairing off with its rival KKR on the bid.
Blackstone will reportedly deploy the capital in about two dozen deals. Assuming Blackstone supplies a somewhat conservative 30% of equity to its investments, the new fund has a buying power exceeding $50 billion.
When Blackstone raised its $6.45 billion predecessor vehicle in 2002, there was a crowd of naysayers in the market knocking the mega funds and their ability to produce returns. To wit, in a 2001 story published in Buyouts, one prominent, albeit crow-eating, placement agent mused, “There is no appetite for large U.S. buyout funds… Investors like middle-market funds because returns tend to be better there and there are better values with less competition.”
Blackstone, and many of its mega-market peers, have proven, however, that returns don’t necessarily suffer with size. According to the CalPERS Website, Blackstone’s fourth fund is already showing a 70.8% net IRR. Impressive indeed, but especially so considering the fund was raised just four years ago.
If there is any knock against mega funds, it is that they won’t be able to deploy capital, and they may have to accept roles as passive money just to unload dry powder. Blackstone has already received criticism for its $3.3 billion investment in Deutsche Telekom, a deal that yielded the firm just a 4.5% minority stake in the German telecom giant.
But the positives are many. The benefit most often cited is that it provides access to deals that are exclusive because of their size. Blackstone Chairman and CEO Stephen Schwarzman addressed that point in a prepared statement. “The record-breaking amount of capital now at our disposal will allow us to undertake transactions of a size and complexity that was inconceivable just a few years ago, and at a level where there is far less competition for high quality assets,” he said.
Although Schwarzman said in an interview with the Wall Street Journal that the fund is “close to the maximum” that can be raised by private equity firms, the Blackstone fundraise remains the latest tombstone in a private equity graveyard no longer haunted by size constraints. And Blackstone, itself, has raised a number of other funds that may have been overlooked next to Blackstone Capital Partners V. Limited partners have also rushed to back Blackstone’s fifth real estate fund, which took in $5.25 billion in commitments, its debut international real estate fund, a €1.55 billion vehicle, and its follow-up mezzanine vehicle, which received $1.06 billion in backing.
Blackstone did not return calls for comment. Park Hill, a Blackstone affiliate, is its placement agent on all funds, and Simpson Thacher & Bartlett provided legal counsel. —M.C.