In May, the Oregon Investment Council authorised a $250 million commitment to The Blackstone Group’s separately managed accounts business, which has now attracted some $2.7 billion since its inception in 2011.
Oregon, one of the most significant limited partners in the private equity industry, decided to commit capital to Blackstone’s unique platform as a way to “enable greater and timelier access to attractive opportunistic investments that [the pension system] might miss otherwise”, according to pension documents.
Separate accounts have become big business since the global financial crisis in 2008, as LPs, especially those with the requisite size and resources, have sought better economics and more control over their relationships with managers.
And Blackstone has seized on that LP desire for new and innovative structures. On its recent second quarter earnings call, firm president Tony James said that “no business [right now] … is as interesting and exciting as Tactical Opportunities … The returns are exceeding our expectations”.
In committing to separate accounts, Oregon joins the likes of Texas Teachers – which pledged $3 billion each to Kohlberg Kravis Roberts and Apollo Global Management in 2011 for investment accounts that cut across strategies – and New Jersey, which committed $750 million to Blackstone’s Tactical Opportunities Fund the same year.
For the LPs concerned, the benefits are legion.
“We wanted to partner with a top-tier firm with a larger number of experienced professionals sourcing global investment opportunities in multiple asset classes,” Christine Pastore, New Jersey state pension system’s former head of alternative investments, told Private Equity International at the time. “This provides New Jersey a platform and deep team with a good track record to use as an extension of staff.”
Blackstone has also received commitments from the California Public Employees’ Retirement System and other US pension funds, sovereign wealth funds and retail investors, James said. It’s already attracted $2.7 billion, and that’s not including the commitment Oregon made last month. The Tactical Opportunities Fund has no cap, James said – though it does have a three year investment period, which in practice is likely to limit the total raised.
For LPs like Oregon, separate accounts not only provide greater flexibility to deploy capital on an opportunistic basis, accessing deals that might not be available through a traditional private equity structure. They also get a learning experience because they’re working so closely with investment professionals from the firms concerned – and that’s a great advantage for systems that have tiny staffs overseeing billions of dollars.