The Alaska Permanent Fund, a sovereign fund that manages proceeds from the state’s abundant natural resources, has become the next big limited partner to join the ranks of large institutions forming strategic relationships with big GPs.
The fund, which manages a $46.7 billion investment portfolio, has committed $1.75 billion to The Blackstone Group and The Carlyle Group for strategic access to investments in hedge fund managers, and natural resources and energy, respectively.
“We’re trying to get more strategic alliances,” the Permanent Fund’s executive director Mike Burns told Private Equity International Friday. “We’re looking at providers that have broad platforms.”
Several large limited partners have formed strategic partnerships with big private equity firms, including the Teacher Retirement System of Texas, which formed combined $6 billion in separate accounts with Apollo Global Management and Kohlberg Kravis Roberts, and New Jersey’s state pension system, which formed an innovative $1.8 billion partnership with Blackstone that included a mix of traditional fund commitments and flexible, direct investment capital.
Carlyle and energy
Alaska Permanent and Carlyle have formed a managed account focused on energy-related investments. The sovereign fund pledged $375 million in traditional fund commitments to Carlyle International Energy Partners, a newly formed fund that sources have told PEI in prior interviews will target around $1.5 billion; and NGP Natural Resources XI, which is not out in the market yet. Alaska also may commit to a yet-to-be-formed agribusiness or metals/mining fund, Alaska Permanent said in a statement.
We're trying to get more strategic alliances. We're looking at providers that have broad platforms.
Carlyle acquired a stake in Natural Gas Partners last year. The energy-focused firm closed its tenth fund last year on $3.5 billion, and it’s not clear when it plans to launch its 11th fund.
Carlyle International Energy Partners, on the other hand, will be run by a new international energy investment team the firm recruited earlier this year. Based in London, the new recruits are headed by Marcel van Poecke, a co-founder of bankrupt Swiss refiner Petroplus. The team focuses on oil and gas exploration and production, midstream, oil field services and refining and marketing in Europe, Africa, Latin America and Asia.
The other part of Carlyle’s managed account is the flexible capital. Alaska has pledged $375 million to “pre-fund” Carlyle direct investments focused on the natural resources, metals and energy sectors.
The flexible capital aspect of recent strategic partnerships has been a key aspect of the deals. New Jersey’s deal with Blackstone, for example, allows the firm to use proceeds to find and quickly execute on credit-related opportunities the pension would miss out on if it had to go through the process of approving a traditional commitment to a credit-related fund.
These are the kinds of opportunities that generally aren’t available to other investors in traditional funds, though it’s not always clear how firms divvy up investment opportunities among traditional funds and flexible capital from separate accounts.
“With our size, we hope we can access things that aren’t available off the shelf,” Burns told PEI.
Carlyle has formed managed accounts with other LPs in the past, including one with Indiana’s state retirement system to run in-state investment funds, managing about $305 million. Carlyle also formed a $750 million account in 2011 with the Municipal Employees’ Retirement System of Michigan, with a commitment of $500 million going to Carlyle-backed fund of funds AlpInvest Partners for primary, secondary and co-investment opportunities, and $250 million pledged to Carlyle to be distributed across the firm’s funds.
Earlier this year, Carlyle hired Jacques Chappuis from Morgan Stanley Alternative Investments Partners as head of the firm’s Solutions business, where he has been responsible for creating new investment products. Chappuis also is tasked with building Carlyle’s relationship with AlpInvest.
“Demand is increasing [among LPs],” Carlyle spokesperson Chris Ullman said about managed accounts. “Increasingly, investors want more customised products and services focused on their specific needs.”
Blackstone and hedge funds
Meanwhile, Alaska has also pledged $1 billion to Blackstone. The first $500 million is slated for Blackstone
Demand is increasing [among LPs]. Investors want more and more customisation and products focused on their specific needs.
Strategic Holdings Fund, a private equity fund with a strategy focused on investing in minority stakes of hedge fund general partner interests, Alaska said in the statement. The next $500 million is reserved for a “no-fee fund” where Blackstone Alternative Asset Management will make investments in selected partnerships alongside Blackstone Strategic Capital Holdings.
In February, Blackstone announced the hiring of Anthony Maniscalco, former head of alternative asset management within Barclays’ Financial Institutions Investment Banking Division, as a managing director focused on building out the platform to buy ownership interests in hedge fund businesses.
“Hedge funds continue to gain market share within the asset management industry, founder-owners are focusing on equity values and succession planning, and there is little opportunistic capital to underwrite and purchase these ownership interests,” Greg Hall, senior managing director with Blackstone, said in a statement when Maniscalco was hired.