LPs talk infrastructure; Blackstone Group listens

  • Firm looking to expand in synergistic asset classes
  • Rival KKR reportedly seeking $2 billion for second infrastructure fund
  • Carlyle Group in market with Carlyle Power Partners

At the very least, infrastructure represents a hole in Blackstone Group’s growing portfolio of funds and asset classes; the largest private equity firm in the world had $266 billion of assets under management as of December 31.

“We don’t have a traditional infrastructure business,” said Vikrant Sawhney, senior managing director at Blackstone Group and COO of the firm’s private equity group, on March 26 at the PartnerConnect 2014 conference in New York City. “But that is certainly something that’s the subject of a lot of discussion these days.” He added that returns in the asset class, which involves investments in roads, pipelines, bridges and other income-producing assets, are “in the high single digits, low double digits.”

Responding to a follow-up question from Buyouts after his presentation, Sawhney said he was referring to discussion taking place about infrastructure among limited partners. He also pointed out that Blackstone Group has been active in energy investing, an area of much overlap between buyout firms and infrastructure shops. A spokesman for Blackstone Group declined to comment further.

While it isn’t clear if Blackstone Group plans a bigger push into infrastructure, Sawhney said his firm does want to “keep evolving,” in part to create opportunities for young professionals to build businesses and try new things. “We don’t want to sully the brand or the reputation of the firm,” Sawhney added. “We won’t get into something if we can’t be best in class.”

Blackstone Group has recently made some fresh moves in infrastructure, even without a pure-play fund. Late last month through its dedicated energy fund the firm launched Global Water Development Partners, a water-investment and development platform led by Usha Rao-Monari, former global head of International Finance Corp’s Water and Wastewater Group, and Lars Thunell, former CEO of the IFC. It will provide capital for desalination and large-scale waste water treatment for industrial customers.

”Global Water Development Partners will leverage Blackstone’s expertise as an active investor and developer of infrastructure projects and its own management team’s extensive knowledge in this sector to identify opportunities globally,” Blackstone Group said in a prepared statement.

Meanwhile, Blackstone Group rivals continue to push ahead in infrastructure. Kohlberg Kravis Roberst & Co is launching KKR Global Infrastructure Investors II with a target of about $2 billion, twice the size of its predecessor, according to reports. Just last month, KKR closed its $2 billion KKR Energy Income and Growth Fund I, headed up by Marc Lipschulz, KKR’s global head of energy and infrastructure. The fund will include exposure to commodities, mineral rights, and royalties as potential hedges against inflation.

Carlyle Group is in the market with Carlyle Power Partners, a successor to its vintage 2006 Carlyle Global Infrastructure Fund, which raised $1.2 billion for investments in transportation and water infrastructure. Carlyle Group hired Robert Mancini as managing director for its infrastructure fund last year from The Goldman Sachs Group to join Robert Dove, managing director.

Last October, one of the biggest players in the field, Brookfield Asset Management, closed Brookfield Infrastructure Fund II with $7 billion in commitments, ahead of its $5 billion target, to invest in transportation, renewable power, utilities, and energy assets in North America, South America, Europe, Australia and Asia.

Private equity shops have stepped in to fund infrastructure projects as banks such as Australia’s Macquarie Group Ltd have pulled back to shore up capital requirements. Macquarie last month agreed to sell its private equity funds management division to managers Michael Lukin, Andrew Savage and Shaw Ng.

Buyouts Editor-In-Charge David Toll contributed to this report.