Blackstone sees demand for separate accounts

The firm has collected a total of $2.6bn for its Tactical Opportunities separately managed accounts business from US public pensions, sovereign wealth funds and retail investors.

The Blackstone Group raised an additional $1 billion in the first quarter for its separately managed accounts business, bringing the total committed to the strategy to $2.6 billion, the firm reported Thursday in its first quarter earnings call.

Blackstone formed the business, known as Tactical Opportunities, in 2011 in connection with the formation of a partnership with the New Jersey state pension system, which committed $750 million to the business. (At the time, New Jersey also committed $750 million to a special credit fund run by Blackstone’s credit shop, GSO Capital). The firm last year added $500 million to Tactical Opportunities from the California Public Employees’ Retirement System.

Tactical Opportunities is a portfolio of separately managed accounts Blackstone forms with individual limited partners. The firm has the flexibility to use the capital on a quick and opportunistic basis around various strategies like credit and real assets investing. Many of the investments in the portfolio have a current yield aspect.

The additional $1 billion came from other US public pension systems, sovereign wealth funds and retail investors, according to Tony James, Blackstone’s president, during the earnings call.

Blackstone continues to see strong demand from limited partners for separate accounts, and expects to raise more capital going forward, James said.

Tony James

“There is no business [right now] that is as interesting and exciting as Tactical Opportunities,” James said. “The returns are exceeding our expectations.” The firm has closed on “10 to 12 transactions”, James said. Tactical Opportunities is able to “take advantage of all the anomalies in the world”, he said. Examples of transactions include an investment in a shopping center in Brazil, non-performing mortgages, mortgage servicing rights and small equity investments, James said.

“It's got a lot of different, interesting components,” James said. “It's global, it's across asset classes, it's focused on illiquid assets and trying to take advantage of things [other people can't do].”

Tactical Opportunities will raise as much capital as the firm can invest well, James said. “It’s not capped … we’ll give it a certain amount of time,” he said. The investment vehicle has a three-year investment period, Steve Schwarzman, Blackstone's chief executive officer, said during the earnings call.

LPs that are part of the Tactical Opportunities business benefit not only from performance, but also from the

There's an enormous amount of activity between us and senior people in those [LP] institutions, and what they're doing, they're going to school off of us and learning how we see what is going on in these asset classes.

Steve Schwarzman

education they get working closely with Blackstone professionals, Schwarzman said.

“There's an enormous amount of activity between us and senior people in those [LP] institutions, and what they're doing, they're going to school off of us and learning how we see what is going on in these asset classes,” Schwarzman said. “This is an opportunity for them, if they follow what we're doing … to impact their portfolios beyond what Tactical Opportunities does for them.”

Blackstone reported strong earnings in the first quarter, with the overall carrying value of private equity portfolio assets appreciating 7.9 percent during the quarter and 18.2 percent over the last 12 months. The appreciation was driven primarily by Blackstone V, the firm said.

Blackstone had $2 billion of realisation activity during the quarter, and $4.6 billion in the last 12 months, the firm said in the earnings statement. Investment activity was muted somewhat, with the firm investing $325 million in the first quarter, though $4.4 billion over the last 12 months.

Blackstone also announced it had raised $3.3 billion for its GSO Capital Solutions Fund II, which James said will “shortly” be at its hard-cap of $5 billion.