Blackstone on target to raise over half of new flagship by the fall

Blackstone Group, like other large, established private equity firms, is benefitting from skittish limited partners who are sheltering in the volatile economy by sticking primarily with their most trusted GP relationships.

The firm, which launched its ninth flagship fund last year, is expecting to have collected more than half of the target by the fall, sources told Buyouts. Blackstone Capital Partners IX held a first close in June on about $9.5 billion, the sources said.

Blackstone’s fundraising pace is illustrative of firms that are able to push through market volatility and slowing pace of fundraising to hit ambitious targets. The key, top GPs say, are LPs who concentrate their capital with them.

“A lot of people who invest in our asset classes are reducing the number of firms they do business with because of reasons of complexity and limitations of their own staff. We’re a huge beneficiary of that trend.” Blackstone CEO Steve Schwarzman said at a recent industry conference.

Cash-strapped LPs are “having to make choices for the first time in a while,” said TPG chief financial officer Jack Weingart during the firm’s second quarter earnings call. “What we see happening is those choices are benefiting the largest, most established GPs with the strongest relationships.”

Blackstone in its second quarter earnings report said it has raised about $8.7 billion. Blackstone Capital Partners IX is targeting at least as much as was raised for the prior fund, which closed on $26 billion in 2019.

Fund IX could reach as much as $27.5 billion, with a $500 million from the GP, for a total of $28 billion, an LP who has heard the pitch said. The firm appears to be targeting a final close in the first quarter, but both target and timing could change depending on the shifting market.

Recession fears loom large after the Commerce Department reported a second straight quarter of falling GDP, which is considered a definition of recession, the Wall Street Journal reported Thursday. The Federal Reserve continues to try and cool down the economy by raising interest rates as a way to tame roaring inflation, which hit a 40-year high during the second quarter.

Private equity is being impacted by these general economic effects. Deal flow is slowing as credit is becoming more expensive, which means exits are also declining. This means distributions are drying up, leaving LPs with less capital to re-commit back into new funds.

Fundraising has taken a direct hit. Globally, PE funds raised $337 billion as of June, a substantial drop off from the $459 billion raised during the same period last year, according to preliminary data from PEI. This includes closed-end funds, co-investments, separately managed accounts and joint venture vehicles, PEI wrote this week.

The number of funds closed also declined nearly 40 percent to 622, from 1,033 last year, PEI wrote.