Three things to know about Blackstone’s $8bn long-hold strategy

Blackstone has raised the largest-ever long-hold private equity vehicle as interest in the strategy from both investors and managers increases.

The fund, Blackstone Core Equity Partners II, held the final close on its hard-cap of $8 billion, making it 70 percent larger than its 2016-vintage predecessor, according to a statement.

“The current volatile and unpredictable environment reinforces the importance of investing in very high-quality companies with a long-term focus,” Joe Baratta, Blackstone’s global head of private equity, said in the statement.

Here are three key things to know about the strategy:

Fast fundraise with a handful of mega LPs

Core Equity Partners II raised $4.8 billion alone in the last two weeks of March out of $8.9 billion of total first-quarter private equity inflows, as Private Equity International reported. This was against the backdrop of a 21.6 percent decline in the value of Blackstone’s portfolio as the economic impact of covid-19 hit.

The fund has been in market since September last year and received $1 billion commitments from the California Public Employees’ Retirement System and Canada Pension Plan Investment Board, the latter having committed the same amount to Core Fund I.

The former chief investment officer of CalPERS, Ben Meng, came under fire for approving the commitment while failing to declare his ownership of shares in three publicly traded private equity firms, including Blackstone. He stood down in August.

Fund I has returned 1.3x

BCEP 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 Blackstone’s Q2 earnings. It completed its first transaction in 2017 with the acquisition of music rights organisation SESAC Holdings. The fund has an investment period of at least 15 years.

The vehicles are invested by the same team that manages Blackstone’s flagship private equity buyout fund. When the firm comes across a “quality” company with predictable cashflow that does not require much in the way of investment or margin improvement, it goes into the fund.

“It’s not like we’re doing nothing, but it’s not the heavy lifting that we do in most of our private equity deals,” Baratta told PEI in 2017.

This time around, it has more rivals

The past year has been marked by heavyweight entrants into the long-hold market. In October, chief executive of EQT Christian Sinding said a long-term strategy, either in the form of a closed-end- or evergreen fund structure, would be a “natural extension” for the firm.

“The idea would be to align it very much with what investors are looking for in terms of generating long-term capital gains,” Sinding said.

Earlier the same month, Mubadala agreed to invest $2 billion with Silver Lake over a 25-year period across geographies, sectors and in early- and late-stage businesses. The tie-up highlighted the Menlo Park firm’s “long-term commitment to [our] portfolio companies”, said co-chief executives Egon Durban and Greg Mondre.

BlackRock Long Term Private Capital is also in market having raised $4.9 billion of its $12 billion target, according to PEI data. The fund adopts a low-leverage, low-fee model that it believes will particularly appeal to family-owned businesses, its Europe head Dag Skattum told PEI.

Not everyone is pleased about this development: “Our bread and butter is to take long-term minority positions in private companies [on a] direct basis … Today everyone is running in the same lane,” Temasek senior managing director Benoit Valentin told delegates at IPEM in January.

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