Exclusive: Blackstone targets stakes in hedge fund managers

Wed Oct 24, 2012 1:03am EDT
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By Greg Roumeliotis and Katya Wachtel

NEW YORK (Reuters) - Blackstone Group LP (BX.N: Quote) is preparing to launch a multibillion-dollar fund that will buy stakes in hedge fund managers in the secondary market, as traditional buyers such as banks pull back amid disappointing fund performance and regulation.

Blackstone, whose hedge-fund solutions business has $46.2 billion in assets under management, sees an opportunity to provide an exit for banks, insurers and other financial institutions that need buyers willing to take on what are particularly illiquid investments, a source familiar with the firm's plans said.

No target for the size of the new fund had been set, although it could attract between $2 billion and $3 billion, the person said. Blackstone will start marketing the fund to potential investors soon, hoping for returns over 20 percent, the source added.

Blackstone declined to comment.

The new fund is the latest example of diversified private equity firms seeking to take advantage of traditional providers of capital on Wall Street that are taking a step back. KKR & Co LP (KKR.N: Quote), citing the financing challenges of those relying on the traditional financial services industry, launched a new capital markets business in July, targeting middle-market companies.

But Blackstone's new fund will be entering a niche space with few players. Its main competitor will be Neuberger Berman Group LLC, whose Dyal fund also targets hedge fund GP stakes in the secondary market. Goldman Sachs Group Inc's GS.N. Petershill fund was also active in this area.

While retaining control, hedge fund managers may choose to sell minority stakes in the general partner (GP), the entity managing the fund, to raise capital to seed their funds. With the new fund, Blackstone is now eyeing such stakes from those who have already bought them and aim to sell them.

"We have a fund that seeds new hedge fund managers, and by doing that owns a piece of the GP, and we have a new product that we are working on, which we will be announcing shortly but haven't announced yet," Blackstone President Tony James told analysts on a conference call last week, without elaborating.   Continued...