Blackstone storming through fundraising ‘supercycle’

The firm expects to exceed $500bn in assets under management by the middle of next year.

Blackstone is ramping up its fundraising ‘supercycle’ and expects to push its assets under management above $500 billion in the first half of next year, according to chairman Steve Schwarzman.

The firm is coming back to market with several mega-funds in the second half of the year, chief operating officer Jon Gray said on the firm’s second-quarter earnings calls Thursday.

“When you start thinking about some of the large fundraises we’ll be launching in the next quarter, including flagship global PE, secondaries and real estate opportunistic funds, this should also be very positive for future growth of fee-related earnings and performance fees,” Gray said.

Blackstone’s assets under management were up 18 percent year-on-year to $439 billion. This was driven by inflows of $120 billion in the last 12 months – “an all-time record for both Blackstone and any other alternative investment fund”, Schwarzman said. This includes $20 billion in the last quarter.

Schwarzman said the ability of the firm to continue raising large-scale capital “begins and ends with investment performance”.

“Our corporate private equity funds had a remarkable performance, appreciating nearly 10 percent in the quarter and over 16 percent in the first six months of the year,” he said. “That’s over six times the S&P total return during this six-month period.”

Chief financial officer Michael Chae said the firm is expecting to hold closes “in the near term” on several funds, including its latest private equity energy vehicle. In the first half it held a final close on its debut Asia private equity fund on $2.3 billion, as reported by PEI.

“If we execute according to plan, we believe we could amass in the area of $300 billion in new fund capital in the 2017 through 2019 three-year period,” Chae said.

The firm is currently investing its $18 billion Blackstone Capital Partners VII, a 2014-vintage vehicle. Its private equity business invested $2.6 billion in the quarter and committed an additional $1.9 billion.

Fund VII is somewhere between 60-80 percent invested and committed, Chae noted.

The next flagship fund is expected to be around $20 billion, Gray confirmed on the call. It will launch in the next quarter, with a first close anticipated in the first half of 2019.

Gray spoke of a challenging market for deployment.

“For us, the focus is on larger, more complex deals often involving public companies,” he said, referencing the transaction in January with Canada Pension Plan Investment Board and GIC for a stake in Thomson Reuters’ Financial & Risk business, which valued the company at $20 billion.

The firm is also looking for companies where it has a competitive advantage, such as Averys, a manufacturer of racking and storage solutions for warehouses, which Blackstone agreed to acquire from Equistone Partners Europe earlier this month.

“We announced some things in the midstream area where there is demand today given the bottleneck in the Permian,” Gray said. “We’ve been doing a fair amount [in] India, where we like what’s happening in I.T. and business processing. And I would say tech enabled services – we’ve done a number of things in that area across healthcare and other industries.”

“It’s clearly not an environment where you buy the market,” he added. “You have to be much more disciplined, much more selective. And for us being a scale player who can intervene and add value, that’s our real competitive advantage.”