Blackstone Delays Fund, Considers Term Changes

Many buyout shops, regardless of size or clout, have come to terms with today’s lukewarm fundraising market by lowering target expectations, pushing back deadlines or giving up ground when it comes to their vehicle’s limited partnership terms. So why should The Blackstone Group be any different?

Well, it’s not.

After having already reduced the target amount for Blackstone Capital Partners VI LP, the New York LBO giant has postponed the mega-fund’s final close, which had been scheduled for June 30, until sometime later this year.

Blackstone Capital Partners VI LP, also known as BCP VI, has so far closed on a reported $10.5 billion. Research firm Preqin noted in a 2008 research report that the fund’s original target was $20 billion, although that figure was scaled down to $15 billion as the fundraising market worsened.

Now it appears that the firm is willing to make concessions to the terms of its new fund to help make it more attractive to investors, according to the private equity portfolio manager of a state retirement system.

The portfolio manager, who has already approved a commitment to the new fund, told Buyouts that it’s likely The Blackstone Group will implement some changes to the vehicle’s limited partnership agreement “that appear to be LP-friendly and driven by ILPA issues.”

ILPA, or the Institutional Limited Partners Association, is an LP advocacy group that has suggested certain “best practices” in fund agreements, such as that LPs receive back all their contributions, plus a preferred return, before the general partner takes carried interest.

The Blackstone Group tapped Central Park Group and J.P. Morgan Securities Inc. to serve as placement agents for BCP VI fundraising effort, according to regulatory filings with the Securities and Exchange Commission. Calls to buyout shop and the two placement groups were not returned.

BCP VI, which is still on pace to be among the largest LBO funds ever raised, pales in comparison to its vintage-2006 predecessor, the $21.7 billion Blackstone Capital Partners V LP, which holds the record for largest buyout fund ever raised.

Investors in BCP VI include the Teachers’ Retirement System of the State of Illinois, which said it was good for a commitment of up to $150 million to the fund; the Arizona State Retirement System ($80 million); the State of Wisconsin Investment Board ($50 million); the City of Philadelphia Board of Pensions and Retirement ($20 million) and the Alaska Permanent Fund Corp. The Blackstone Group itself has invested a total of $750 million into the fund, according to Reuters, publisher of Buyouts.

Performance-wise the firm is on solid ground. As of Sept. 30, 2009, Blackstone Capital Partners II LP, raised in 1994, has generated an investment multiple of 2.2x and a net IRR of 37.4 percent; Blackstone Capital Partners III LP, raised in 1997, has generated an investment multiple of 1.7x and a net IRR of 12.9 percent; and Blackstone Capital Partners IV LP, raised in 2003, has generated an investment multiple of 2.2x and a net IRR of 40.5 percent, according to the California Public Employees’ Retirement System.

Blackstone Capital Partners V LP, which was about 72 percent drawn down as of the end of September, had produced an investment multiple of 0.7x and a net IRR of -15.2 percent, according to CalPERS.