Blackstone Unsure How Big Fund Could Grow

The Blackstone Group is asking its current limited partners for more money, a move which is likely to push the committed capital in its current fund, already the largest ever at $15.6 billion, even higher. But the final amount is still up in the air, says a person familiar with the matter.

The Wall Street Journal reported that the firm plans to raise an additional $4.4 billion, to bring the fund to $20 billion total. But the person familiar with the matter says it is premature to get to a hard figure. At this point, Blackstone is waiting for its backers to give it feedback on whether they want to pony up more money, and how much.

Blackstone, whose new fund is already at least 40% invested, has two reasons for asking for more money, says our source. First, a larger fund would translate into a longer the life for the fund, lowering the risk to LPs since their risk would be spread out over a longer period of time. Second, raising a fund is an enormous distraction for the firm, and one that Blackstone would like to put off as long as possible.

The Blackstone fund, Blackstone Capital Partners V, took in around $12 billion in 2005, then postponed closing the fund until the third quarter of this year. As it continued to raise the target of the fund, observers speculated that Blackstone was motivated by the huge opportunity in the marketplace, but also by the desire to have bragging rights. Rival firms were threatening to beat out Blackstone for having raised the largest fund ever.

This year is on pace to be the biggest in the history of fundraising, even shattering last year’s mark of more than $180 billion raised by U.S.-based buyout and mezzanine funds. So far this year, about $160 billion has been raised by U.S.-based funds, as tracked by Buyouts. The biggest funds include Apollo Management’s $10.1 billion pool; Kohlberg Kravis Roberts & Co.’s second Millennium fund which, added together with other KKR fund initiatives from this year (its $5 billion Euronext public offering and an Asia fund), will likely total around $25 billion; Texas Pacific Group’s fifth fund, with $15.2 billion in commitments; and Bain Capital’s $10 billion fund. Blackstone itself also closed its $5.25 billion fifth real estate fund in the second quarter.

One buyout pro at a large New York shop predicts that Blackstone will have no problem getting LPs to commit more money. “The last thing anyone wants is to not be in Blackstone. There is something about these mega-fund brand names that is mind boggling.”

In business since 1985 and known for teaming up with strategic buyers on about half its deals, Blackstone earlier this year completed its 100th acquisition.—M.C.