Blackstone is seeking $4.5 billion for a fourth fund earmarked for tactical opportunities, a 10-year strategy the private equity giant pioneered.
Blackstone Tactical Opportunities Fund IV’s target was disclosed in a document published last month by Teachers’ Retirement System of Louisiana. TRSL is committing $125 million.
If Blackstone meets the target, Fund IV will be slightly larger than its predecessor. Fund III secured roughly $4 billion two years ago, according to various sources, including a 2020 report by Connecticut Retirement Plans and Trust Funds.
The $32 billion Blackstone Tactical Opportunities was founded in 2011 by veterans of the firm, led by global head David Blitzer and COO Chris James. It was designed to invest flexibly and opportunistically in asset classes, markets and sectors that are typically beyond the scope of Blackstone’s flagship vehicles and other platforms.
On its website, Blackstone describes tactical opportunities as a nimble and unconstrained strategy that sources deal flow “in times of stability or volatility, in good markets or in bad.” Investing, it adds, is differentiated and aimed at delivering portfolios with “less correlation and lower volatility.”
In launching tactical opportunities, Blackstone helped inaugurate a new investment category – broadly known as special opportunities – of interest to limited partners as well as other large PE firms. It has to date made 146 investments.
Fund IV is targeting 35 to 45 investments in a range of global industries, each expected to be held for four to five years, the TRSL document said.
Investing will be structured for downside protection while allowing for potential outperformance. The portfolio will consist of about 25 percent equity-like investments with upside potential, about 25 percent credit-like investments that generate cash yield, and about 50 percent hybrid investments.
Active deal pace
Blackstone Tactical Opportunities was active throughout last year’s virus-roiled market, backing companies like Diligent, a maker of governance, risk and compliance software. The deal, which included a follow-on investment from Clearlake Capital, valued Diligent at about $4 billion, PE Hub reported.
The firm appears to be maintaining a steady pace so far this year. Activity includes the acquisition of a majority stake in Certified Collectibles Group, a tech-enabled authentication, grading and conservation services provider for collectibles. The deal, announced last month, valued CCG at more than $500 million.
Blackstone Tactical Opportunities also earlier this year partnered with Blackstone Infrastructure Partners in an investment in Hotwire Communications, a fiber-to-the-home business. In addition, it acquired a minority stake in Walker Edison, a furniture supplier focused on the e-commerce channel. Prospect Hill Growth Partners is the company’s control investor.
In its Q2-2021 earnings report, Blackstone said the tactical opportunities strategy was as of June earning a combined multiple of 1.6x. The combined net IRR on realized investments was 18 percent, and the total net IRR, 14 percent.
Blitzer oversees a global team of 165 professionals, according to Blackstone’s website. This includes a dedicated tactical opportunities group with a headcount of 72, the TRSL document said.
Strategies comparable to Blackstone’s seem to be gaining traction across the PE universe. Brookfield Asset Management recently secured an initial $2.4 billion for a debut special investments fund with a $5 billion target, Buyouts reported in May.
Another Blackstone peer, Apollo Global Management, is in the market with a second hybrid value fund, for which it is seeking $4 billion to $5 billion, Buyouts reported in June. In its Q1-2021 results, Apollo said the vehicle had so far collected $3.2 billion.
Blackstone declined to provide a comment for this story.