Firm: The Blackstone Group
Fund: Blackstone Capital Parters VII LP
Target: $16 billion
With few super-sized buyout pools now in fundraising mode, funds such as BCP VII may appeal to larger limited partners, one LP adviser said.
”There is a ready audience for megafunds in large pension funds and sovereign wealth funds,” Kunal Shah, principal at Meketa Investment Group, said in an email. “This group has to deploy significant amount of capital in private equity and megafunds are attractive because they allow them to write big checks in order to meet their target allocation.”
Megafunds help LPs minimize the number of relationships with third-party managers and may offer attractive fee concessions to large investors, he said.
TPG Capital, for example, has offered a discount in management fees for early investors in its new $8 billion to $10 billion TPG Partners VII fund, one of the only other megafunds in the market right now.
Other big pools on the horizon include Blackstone’s second Tactical Opportunities fund, seeking up to $8 billion, according a report by sister website peHUB. Hellman & Friedman’s Hellman & Friedman Capital Partners VIII is expected to hit its $10.3 billion hard cap, marking another jumbo fund wrapping up its efforts of late, according to a separate peHUB report.
Kelly DePonte of Probitas Partners said early results of the placement firm’s annual survey of investors show mega-buyouts ranked below mid-market buyouts in the United States and Europe—similar to past readings.
Nevertheless, ”many investors have long-term relationships with megafunds, and investors make clear distinctions between managers who have performed strongly for them in the past and those who haven’t,” DePonte said. ”Megafund managers who are in favor are likely to get momentum.”
David Fann, president and CEO of TorreyCove Capital Partners LLC, declined to comment on Blackstone specifically, but he said megafunds allow some LPs to make sizable investments “without the issues of getting cut back or fighting for allocation” as well as the perceived benefit of buying a well-known brand.
”If you are investing in private equity, you should be diversified by size, style, geography, etc.,” Fann said. “Some portfolio exposure to mega buyouts makes sense for most sophisticated LPs. Mega buyout franchises that have consistently good track records and the proven ability to successfully invest in all aspects of the economic cycle are a no brainer.”
Blackstone Capital Partners VI, the $15 billion fund raised in 2011, rang up an IRR of 11.9 percent as of Dec. 31, 2013, for Teachers’ Retirement System of the City of New York, according to pension fund data compiled by Buyouts. Blackstone Capital Partners V’s IRR was 7.4 percent as of the same date. Fund V raised $21 billion in 2005.
As of June 30, BCP VI had a net IRR of 19 percent and BCP V had a net IRR of 8 percent, according to Blackstone’s second-quarter update.
In an interview at the PartnerConnect LP GP Summit on Sept. 18, Tony James, Blackstone’s president and COO, declined to talk about fundraising but cited some of the performance data in the firm’s second-quarter update as evidence of strong returns for LPs and said Fund V’s results may be boosted by future transactions.
While Blackstone hopes to raise up to a combined $24 billion for BCP Partners VII and its second Tactical Opps fund, it is well accustomed to pulling in tens of billions of dollars. Dating back to Jan. 1, 2011, until Sept. 24, Blackstone raised a total of $48 billion as the biggest fundraiser in private equity, according to a Buyouts database. The Carlyle Group ranks second with $30.4 billion, and Lone Star Funds holds the No. 3 spot with $24.2 billion.
Blackstone has a long list of fundraising milestones under its belt and a roster of big LPs to tap starting with the largest public pension fund, the California Public Employees’ Retirement System, and the sizable New Jersey Division of Investment.