Blackstone Group LP will conclude fundraising for its latest buyout fund in January, raising just over $16 billion, three people familiar with the matter said on Wednesday, in a 4-year process challenged by the global financial crisis.
The fund is the largest in the market to complete its fundraising process and the sixth biggest private equity fund ever raised, according to data firm Preqin.
Private equity firms raised $263 billion in 2011, slightly less than in 2010, according to Preqin, and a far cry from the height of the buyouts boom leading up to 2007, when they pulled in around $600 billion a year.
The size of the fund that Blackstone was able to raise in this environment shows that pension funds and other investors are getting more picky about which private equity firms they trust their money with. Some investors are also getting better deals on fees by negotiating large commitments.
"I don't think we will see a large private equity fund like this closing for a few years," said Sandler O'Neill & Partners analyst Michael Kim.
Fundraising for the latest buyout fund, Blackstone Capital Partners VI LP (BCP VI), began at the start of 2008 and the firm kicked off the fund's investment period on January 7, 2011, giving it a 12-month deadline to reach final fundraising close, the people said.
Blackstone had already pushed back the final close as late investors asked for time to get approval from their investment committees and conduct their due diligence. A June 2010 memo by private equity advisor PCG Asset Management LLC to the Oregon Public Employees' Retirement Fund listed June 30, 2010 as the expected final closing date.
In November Blackstone said it had raised over $14 billion for the fund and Chief Operating Officer Tony James said the number will end up with close to $15 billion.
But in July 2011 Blackstone Chief Executive Steve Schwarzman said the fund had topped $16 billion and predicted that it would likely will be the largest to be raised for the next two or three years. The amount has remained about the same since then, the sources said.
Blackstone declined to comment.
Negotiating A Better Deal
BCP VI has attracted some of the world's largest private equity investors, including the California Public Employees' Retirement System and Canada Pension Plan Investment Board, according to disclosures by these pension funds.
Some investors took advantage of the protracted fundraising period either to tap a previously unavailable private equity allocation or negotiate a better deal.
Last month, the New Jersey Division of Investment said it planned to invest $50 million in BCP VI as part of an investment program across Blackstone's alternative asset platforms that will total up to $2.5 billion.
The New Jersey pension fund manager will pay a blended 1.3 per cent management fee on committed capital during the fund's investment period and 0.75 per cent on invested capital after the period ends, as well as options for management fee offsets that Blackstone offered, according its investment committee report.
Private equity firms typically charge around 1.5 per cent of committed capital as a management fee, but investors may pay different fees based on the size of their commitments.
"Fundraising takes longer these days; this is not unique to Blackstone. But big investors are looking to give money to fewer private equity managers and the likes of Blackstone are a beneficiary of that," Kim said.
BCP VI's predecessor, BCP V, remains the largest private equity fund ever to be raised at $21.7 billion, according to Preqin.
BCP VI's first acquisition deals include the $3 billion takeover of healthcare IT firm Emdeon Inc and an investment of up to $277 million in Exeter Finance Corp, which provides financing to auto dealers.
BCP VI had invested $620 million of its capital as of September 30, according to a November 10, 2011 presentation by Schwarzman to investors. Blackstone had about $15.1 billion of available capital between BCP V and BCP VI, the presentation showed. The Emdeon deal was completed in November.
While Blackstone seeks so-called "dislocation" in markets for attractive asset values, financial market turmoil also affects its ability to source debt cheaply for deals, and hence its returns and transaction size.
The firm's shares are up almost 40 per cent from a 2011 low of $10.51 as prospects for the US economy brightened and concerns over the euro zone's sovereign debt crisis eased slightly.
Global private-equity backed mergers and acquisition activity picked up in 2011, with total volumes up 32.2 per cent year-on-year to $306.3 billion, according to Thomson Reuters data.