Blackstone on the cusp of closing $4bn sophomore GP stakes fund

In an increasingly hot GP stakes market, Blackstone secured more than $3.5 billion for a second minority capital offering.

The fund is targeting $4 billion, a person with knowledge of the matter told Buyouts. Blackstone has the option to go higher, the person said.

Blackstone Strategic Capital Holdings II and parallel pools, launched in 2019, together accounted for the $3.5 billion, Form D fundraising documents showed. Fund II is already larger than Blackstone’s inaugural GP stakes vehicle, which closed six years ago at $3.3 billion.

Fund II signed on 57 investors, according to the Form Ds. Disclosed limited partners include State of Michigan Retirement Systems, which committed $250 million to the main fund and another $100 million to a separate account for co-investing.

It is not known if Alaska Permanent Fund is investing. Alaska provided a weighty $500 million commitment to Fund I, along with another $500 million for a co-investment sidecar.

Blackstone declined to comment on this story.

GP stakes funds, which acquire minority interests in private equity firms in exchange for a share in income, have emerged strongly in the past few years, amassing ever-larger dedicated pools. Blackstone’s Strategic Capital, along with Goldman Sachs’ Petershill unit and Neuberger Berman’s Dyal Capital Partners, dominate the space, assuming the bulk of capital raised and deals done.

Managers sell pieces of themselves to GP stakes funds to bolster their balance sheets and finance top priorities, such as GP commitments to new offerings, strategic growth initiatives and successions. They also gain a hands-off, value-adding partner with a long investment horizon.

Blackstone’s GP stakes portfolio

Blackstone has to date acquired interests in several brand-name shops located in North America, Europe and Asia. They include BC Partners, which in 2019 sold a 10-15 percent position, according to various media reports. The deal enabled GP commitments across PE, private debt and real estate strategies, Private Equity International reported.

Two years ago, Blackstone also acquired a less-than-10-percent interest in New Mountain Capital, which among other things may have supported a succession. In July, Buyouts reported that CEO Steve Klinsky cut his 100 percent ownership, with Blackstone and managing directors picking up a one-third share.

In all, Blackstone’s portfolio holds 13 PE and hedge fund managers, the source said. Other disclosed examples include Francisco Partners, GI Partners, Kohlberg & Company, Leonard Green & Partners, Marlin Equity Partners and PAG.

Intensive deal-making since 2014 has sparked debate about how much opportunity remains in the GP stakes market. In a December interview with Buyouts, Dyal head Michael Rees said “there are still a lot of great firms that don’t have partners,” especially outside of North America.

In addition, the universe of managers is always expanding, Rees said, as mid-sized firms become large firms through step-ups between offerings. “The pond grows slowly, but it grows,” he said.

Dyal wrapped up a fourth GP stakes fund last year, collecting $9 billion-plus. It is in talks with LPs about unveiling a fifth offering with a target of at least $9 billion, Bloomberg recently reported.

Blackstone’s Strategic Capital, part of the $76 billion Blackstone Alternative Asset Management, is led by senior managing director Scott Soussa. Joining the firm in 2003, Soussa was previously head of due diligence in the hedge fund solutions group.

Action item: view a video overview of Blackstone’s Strategic Capital here.