Blackstone Set To Wrap World’s Largest LBO Fund

The Blackstone Group is climbing back on top.

The New York mega-firm expects to close at the end of July on a roughly $6.4 billion supplemental pool of capital, giving Blackstone slightly over $22 billion for its fifth fund, according to a person with direct knowledge of the situation. Blackstone CEO Stephen Schwarzman visited limited partners in the Middle East earlier this year in connection with the supplemental fund.

A supplemental pool of that magnitude would crown Blackstone as the firm managing the largest LBO fund ever raised, a mantle the firm relinquished earlier this year. The firm, which filed to go public earlier this year, originally closed Blackstone Capital Partners V in the third quarter of last year with $15.6 billion. After rivals moved past Blackstone with larger funds, the firm then reopened Fund V with the blessing of limited partners.

Initial media reports estimated the supplemental fund size would reach about $4 billion. That Blackstone exceeded that amount underscores the depth of LP appetite for mega-funds, and particularly Blackstone’s, which have historically returned more than 20 percent net of fees. A Blackstone representative declined comment on the size of the supplemental fund, as well as the closing date of July 31.

The months since Blackstone re-opened its fund last fall couldn’t have been more eventful. In February, Blackstone closed the largest LBO of all time, the $39 billion delisting of Equity Office Properties. Then, in the wake of Fortress Investment Group’s successful initial public offering, Blackstone filed to sell as much as $4.75 billion worth of itself in an IPO. In perhaps the most groundbreaking maneuver of all, Blackstone in May agreed to sell $3 billion of its general partnership to the Chinese government, bringing the potential overall take from the IPO to $7.75 billion.

Blackstone’s fifth fund has now been in the market since 2005, making it a remarkably long fundraise for a firm of Blackstone’s stature. Other mega-shops such as Bain Capital, First Reserve and Providence Equity Partners have enjoyed much shorter fundraisings.

Blackstone’s persistence in keeping the fund open suggests the firm’s unwillingness to cede the title of world’s largest fund. GS Capital Partners, the buyout arm of investment bank Goldman Sachs Group, currently holds the title of world’s largest fund, with its $20 billion sixth fund that closed in April. Kohlberg Kravis Roberts & Co., which has also been in the market since at least early 2006, has $16.4 billion for its KKR 2006 Fund, according to The Daily Deal.—M.C.