Blackstone defends its need for mega-funds

Blackstone president Tony James has said the firm ‘can justify a fund of $15bn to $20bn’ given its investment pace and current opportunities.

The Blackstone Group will not cap its ongoing private equity fundraising efforts, despite the steep decline in the M&A market, president Hamilton “Tony” James said in an earnings conference call today.

The firm’s current private equity fund, Blackstone Capital Partners VI, has collected roughly $8 billion as of February. Although the target of the fund was lowered last year from $20 billion to $15 billion – an amount that if reached would still make it among the largest such vehicles ever raised –  James said it is appropriate for the market opportunity.

Blackstone Capital Partners V, which closed on $21.7 billion in 2006, had been able to deploy approximately $7 billion in equity per year, said James, adding that roughly 25 percent of that capital went to large buyouts. Even removing the ability to do any large buyouts with the new fund, the firm would still need plenty of capital to deploy in other investment structures, he said.

“If you can invest $4 [billion] to $5 billion with no big deals whatsoever, you can justify a fund of $15 [billion] to $20 billion,” said James. “There is plenty of opportunity to invest” a fund of that size.

The firm’s private equity group currently has $14 billion in dry powder and sees the most attractive opportunities in middle-market deals and distressed debt, said James.

In the second quarter of 2009, Blackstone’s corporate private equity revenues totaled $198.6 million compared with $92.4 million in the same period last year. According to a statement, revenues more than doubled over the year due to “stabilisation in the total fair value of the segment’s underlying portfolio investments”.