Exclusive: Blackstone chases Buffett with 'core' private equity

Tue Nov 18, 2014 4:00pm EST
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By Greg Roumeliotis

NEW YORK (Reuters) - Blackstone Group LP has reached out to its biggest fund investors about investing in a new investment vehicle with a longer investment horizon than the typical 10-year private equity fund, according to people familiar with the matter.

Dubbed "core" private equity, this vehicle would invest in slower-growing but safer companies, use less debt in buyouts and charge investors lower fees than most private equity funds, these people said. Blackstone is seeking as much as $2 billion apiece from five to six of its biggest public pension fund and sovereign wealth fund investors for the strategy, the people said.

    Aspects of the strategy, including the exact fees and holding periods for investments, are still being worked out, these people said. They added that the idea is still at an exploratory stage and may not take off.

    A Blackstone spokesman declined to comment. The biggest investors in Blackstone's funds include the California Public Employees' Retirement System, the New Jersey State Investment Council and China Investment Corp.

    The move underscores how Blackstone is looking to boost its valuation as a publicly listed company by managing more permanent capital and further diversifying its model of buying and selling companies. Blackstone is already the world's largest alternative asset manager, with $284.4 billion in assets under management as of the end of September spanning private equity, real estate, credit and funds of hedge funds.

A higher stock valuation would benefit Blackstone shareholders, of whom the company's employees form the largest group. Chief Executive Stephen Schwarzman is the biggest holder by far, owning about a fifth of the firm. In 2013, Schwarzman collected $352.5 million from dividends from his Blackstone shares.

    The new strategy also would help Blackstone address what has been a frustration for some buyout firms and a source of envy when they compare their investment vehicles with Warren Buffett's Berkshire Hathaway Inc. In this vehicle, Blackstone would not be forced to sell successful companies too soon because the fund is running out of time.

Most private equity investors however, also known as limited partners, prefer the traditional buyouts because they deliver high annualized returns. The prospect of lower returns may not be an easy sell.   Continued...

Tony James, president of the Blackstone Group, arrives as a panel member for the breakout session at the Clinton Global Initiative 2014 (CGI) in New York, September 23, 2014. REUTERS/Shannon Stapleton