Blackstone gears up for second long-hold fund

The private equity giant had deployed $2.5bn from its debut Core Equity Partners fund as of the end of June.

Blackstone, the world’s largest private equity firm, appears to be gearing up to raise its second long-hold private equity fund.

The New York-headquartered firm registered Blackstone Core Equity Partners II in Luxembourg on 9 September, according to public filings. The fund’s target was not disclosed.

It comes just after Blackstone’s record-breaking fundraise for Blackstone Capital Partners VIII, which attracted $26 billion in capital commitments, as Private Equity International reported.

Blackstone had not returned a request for comment by publication time.

The firm collected $4.8 billion for its 2016-vintage BCEP I, which has an investment period of at least 15 years, rather than the traditional three to five.

Fund I had deployed $2.5 billion as of 30 June, generating a 1.3x multiple-of-invested-capital and a 14 percent net internal rate of return, according to the firm’s Q2 earnings. It completed its first transaction in 2017 with the acquisition of music rights organisation SESAC Holdings.

Canada Pension Plan Investment Board committed $1 billion to Fund I, according to PEI data. Other limited partners include National Pension Service of KoreaNew York State Common Retirement Fund and PensionDanmark.

Berkshire Hathaway-style long-hold funds are growing in popularity. CVC Capital Partners collected €4.6 billion for CVC Capital Partners Strategic Opportunities II in July, beating its €4 billion target, and KKR raised $8.5 billion last year for its core investment strategy.

More than 25 percent of GP respondents in law firm Dechert’s 2019 Private Equity Outlook said they had already established a long-hold fund and nearly one-third were considering the strategy.

Long-hold private equity vehicles could significantly outperform traditional fund strategies,  generating double the post-tax investment multiple of typical buyout funds over a 24-year period, according to Bain & Co.

Such vehicles benefit from lower transaction costs due to reduced deal activity, deferred taxation of capital gains and greater flexibility around the timing of an exit, which all help drive potential outperformance, the report noted. Targets often boast strong management, healthy free cashflow and tap into demographic tailwinds, such as an ageing population.

Investors can also pursue the strategy via holding companies. Cranemere Group, whose chief executive Jeffrey Zeints advised the Obama administration on economic policy, had collected around $1.5 billion to deploy into US and European private companies for an indefinite period, PEI reported in January.