Blackstone Group LP, the private equity giant with ambitions for the largest-ever infrastructure fund, is seeking as much as $10 billion to supplement a $20 billion anchor commitment for the pool before it starts investing, people with knowledge of the plans said.
The firm is planning to start with $5 billion of outside capital and as much as $5 billion from clients with separately managed accounts, said the people, who asked not to be identified because the process is private. That would supplement the commitment of as much as $20 billion that Saudi Arabia’s Public Investment Fund made to the pool in May. The money from PIF will be provided to the fund in stages, matching commitments from outside investors.
Blackstone’s own commitment is 2.5 per cent of the fund up to $500 million, the people added.
At least 70 per cent of the pool will be invested in North America, the people said. It will be flexible to invest in different types of projects and will focus on energy, transportation, communications and water and waste facilities.
Blackstone is structuring the vehicle to be open-ended, meaning it can continually gather commitments and distribute profits while investing. The firm will take 12.5 per cent of the profits when the fund exceeds a 5 per cent annualised return hurdle, the people said. It will collect management fees of 0.5 per cent on uninvested capital and 1 per cent on the pool’s net asset value, with a 25 per cent discount during the first two years after the fund starts investing, the people added.
The firm in May named partner Sean Klimczak as head of the infrastructure strategy. The fund’s investment committee also includes Blackstone Chief Executive Officer Steve Schwarzman, President Tony James, real estate head Jon Gray, private equity leader Joe Baratta, energy private equity head David Foley, private equity portfolio operations leader Dave Calhoun and Dwight Scott, the president of the firm’s credit unit, the people said.
Blackstone is targeting an annualised return after fees of about 10 per cent for the strategy, the people said. It plans to not allow backers to redeem their investment for the first six years of the fund’s life, the people added. Future clients will be locked in for the first three years of their commitment, they said.
A spokesman for Blackstone declined to comment.
The firm unveiled its ambitions in infrastructure in May, when the Saudi fund said it would back half of the pool and Blackstone said it would raise the other half, totalling $40 billion. With leverage, Blackstone said it expected to have more than $100 billion in purchasing power for infrastructure projects.
The new effort is Blackstone’s second attempt to establish a fund dedicated to infrastructure. It tried raising at least $2 billion after the global financial crisis, but then spun the group out in 2011 to become Stonepeak Infrastructure Partners. Stonepeak is now raising money for its third fund and could get as much as $7 billion.
Among the risk factors it’s disclosing to potential investors, Blackstone says in the new fund’s marketing documents that it doesn’t have infrastructure operating history and the investments will be different from other deals the New York-based firm has done, the people with knowledge of the plans said.
Blackstone has deployed about $6 billion of equity in 25 to 30 infrastructure deals, mostly in energy, over the past 15 years, James, its president, said in January. Annualised returns on those investments have been as high as 40 per cent, he said.