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Blackstone strikes balance with haul of GP stakes

The firm’s Strategic Capital Holdings Fund took stakes in three private equity managers during March after a previous weighting towards hedge funds.

Blackstone has balanced its appetite for hedge fund manager stakes with a flurry of investments in private equity.

The firm’s $3.3 billion 2013-vintage Strategic Capital Holdings Fund completed its first overseas transaction on Monday after taking a passive minority stake in Hong Kong-headquartered PAG, which has more than $20 billion of capital under management in private equity, real estate and absolute returns. The deal capped a busy month for the permanent capital vehicle, which also purchased stakes in real estate investment manager Rockpoint Group and New York-based mid-market firm Kohlberg & Company in March.

These latest deals – which followed the purchase of a stake in US buyout firm Leonard Green & Partners in 2017 – bring the total number of private equity managers in its portfolio to four. The fund has now amassed an even number of stakes in private equity and hedge fund managers, having invested only in the latter between 2013 and 2016.

Such activity is not a strategy shift; the vehicle does not have a formal allocation to either asset class and is expected to make further acquisitions in the hedge fund space, according to a source with knowledge of the fund. It has completed only eight of the 12 to 15 deals it is targeting – some of which were co-investments – and is understood to have a “significant” amount of dry powder remaining, the source noted.

Strategic Capital Holdings Fund sits within the firm’s $75 billion hedge fund investment group, Blackstone Alternative Asset Management.

Recent growth in private equity ownership sales could be partly attributed to GPs becoming more open to outside investment. Rapidly overheating equity valuations, recent market volatility and the threat of rising interest rates have placed greater emphasis on the need to consolidate or diversify into other strategies. Other benefits include the ability to make larger balance sheet commitments to their own funds and a potential solution to succession headaches further down the line.

Blackstone is one of several firms tapping into this demand. Neuberger Berman’s Dyal Capital Partners has already secured around $1 billion of commitments for its fourth fund, for which it is targeting up to $6 billion, Private Equity International reported in October. The unit’s private equity portfolio comprises 10 asset managers including HIG Capital, EnCap Investments and Silver Lake.

One of Blackstone’s LPs is also a big supporter of this strategy. Alaska Permanent Fund committed a whopping $500 million to the Strategic Capital Holdings vehicle and is understood to have positions in several Dyal portfolio companies, including Vista Equity Partners and EnCap, according to a source familiar with the fund.