In a slow market for energy private equity fundraising, Blackstone is on the verge of closing one of the largest vehicles in recent years.
Blackstone Energy Partners III has secured about $4.2 billion, a person with knowledge of the matter told Buyouts, putting it within striking distance of its target. Several sources, including the Wall Street Journal, previously reported the fund is seeking about $4.5 billion.
Fund II closed in 2015 at a hard cap of $4.5 billion. It was backed by new and existing limited partners, including endowments and foundations, family offices, insurers, pension plans and sovereign wealth funds.
A similar mix of investors appears to have signed on to Fund III.
Disclosed LPs include several U.S. institutions, such as California State Teachers’ Retirement System; Employees’ Retirement System of the State of Hawaii; New Mexico State Investment Council; Oregon Public Employees’ Retirement System; Public Employee Retirement System of Idaho; San Francisco Employees’ Retirement System; South Dakota Investment Council; and Teachers’ Retirement System of Louisiana.
Blackstone has been investing in the energy industry since 1997. In 2011, the scale of the firm’s deal pipeline was found to surpass its allocation limit, resulting in the launch of a first dedicated pool, a 2018 report by New Mexico’s SIC said. Fund I closed in 2012 at $2.5 billion.
Blackstone’s strategy is to make control-stake investments in companies, assets and development projects across energy and natural resources sectors. This reflects a broad focus, including upstream and midstream oil and gas, power and renewable opportunities worldwide, though most deals are done in North America.
Blackstone’s flagship buyout funds have traditionally invested alongside its energy pools. Last year, Blackstone Capital Partners VIII raised over $26 billion, Buyouts’ sister publication Private Equity International reported. The firm also closed a second energy-focused credit fund, GSO Energy Select Opportunities Fund II, at $4.5 billion.
Global energy PE fundraising was at a low ebb last year. In all, 28 vehicles collected $25 billion, roughly half of the $49 billion secured by 35 funds in 2018, according to PEI Research data. In fact, the pace of activity in 2019 was the slowest in more than a decade.
If Blackstone Energy Partners III meets its goal, it will be among the seven largest energy PE funds closed in the past three years, the data show.
Blackstone disclosed a single energy deal in 2019. It formed Waterfield Midstream, a provider of water management services to upstream producers in the Permian Basin. Waterfield received a $500 million commitment to pursue greenfield development and acquisitions.
Another portfolio company is Cheniere, which in 2012 received $1.5 billion to build the Sabine Pass liquefied natural gas export terminal. Bloomberg last year reported Blackstone was looking to sell its Cheniere stake, then valued at close to $9 billion.
Blackstone’s energy strategy is led by Senior Managing Director and Global Head David Foley. Foley joined the New York-based firm in 1995 after working for AEA Investors.
Blackstone Energy Partners I had a value multiple of 1.61x and a net IRR of 13.50 percent as of June 2019, according to a report published by PERSI. Fund II had a multiple of 1.16x and a net IRR of 9.57 percent.
Blackstone declined a request for comment on this story.
Action Item: Check out David Foley’s biography here.