The fundraising, expected to be finalised this week, is slightly behind schedule but will mark the biggest initial close for a first-time fund across any alternative investment strategy after SoftBank’s $100bn Vision Fund and the China Structural Reform Fund, according to Preqin. The data exclude funds with a single close.
A spokeswoman for New York-based Blackstone declined to comment.
The planned $40bn fund – Blackstone Infrastructure Partners – raised eyebrows when it was unveiled last May in Riyadh during a visit from President Donald Trump and business leaders including Stephen Schwarzman, Blackstone’s chairman and chief executive officer. The Public Investment Fund of Saudi Arabia, known as PIF, pledged as much as $20bn, on the condition that every dollar would be matched against commitments from other investors.
Industry executives have said even the optics of PIF’s massive presence in the Blackstone fund could put it at a disadvantage when vying for investments that require support from local, state or federal officials. Still, the Saudis will have a minority position in any deal and no investment discretion, according to some of the people.
The first close gives Blackstone a dedicated fund in an area where key rivals broke ground more than a decade ago. While the close isn’t as large as some observers expected, the fact that Blackstone has reached this juncture at all signals that naysayers’ prognostications may have been premature.
The capital raising comes even as Trump has yet to deliver on a promise to facilitate the investment of as much as $1.7tn in the next decade. “It would be helpful if they do something around infrastructure,” Blackstone President Jonathan Gray said of the federal government in May. Still, “there’s tonnes to do even without it,” the firm’s chief financial officer, Michael Chae, said on an earnings call in February.
The firm initially didn’t say whether it was aiming to raise the matching commitments in one fell swoop, but on a call with reporters in February, Blackstone’s then-president, Tony James, clarified that the $40bn would be gathered “over the next decade or so.”
A January memorandum from a Pennsylvania pension plan said Blackstone was seeking $7.5bn during its initial fundraising phase. That time frame includes the next nine months, over which there will be additional closes, said some of the people with knowledge of the matter, who requested anonymity because the information is private.
After March 2019, the fund won’t accept new pledges until its coffers have been emptied, an investment period Blackstone expects to last three to four years, the people said. All along, the firm had been targeting between $5bn to $7.5bn of outside capital to form a fund of $10bn to $15bn including the PIF match during the initial phase, said the people.
A first close for the infrastructure fund in the current quarter was Blackstone’s intention since inception, Chae said at a conference this month. Still, the June time stamp is behind the March or April projection set internally, in part because senior hires took longer to get on board, according to people with knowledge of the matter and the Pennsylvania memo.
Apart from PIF, investors include the Pennsylvania Public School Employees’ Retirement System, which is cutting a $500mn check, the New Mexico State Investment Council and the Parochial Employees’ Retirement System of Louisiana, according to fund disclosures and Bloomberg data.
The fund’s perpetual, or open-ended, structure is designed to match the lifespan of infrastructure assets, meaning it won’t be forced to sell to realise profits within a set timetable. Targeting an annualised return after fees of 10%, its areas of focus include assets such as ports, waste facilities and telecommunications towers.
Blackstone has firmed up its senior infrastructure ranks, promoting internally and hiring from rival investors such as EIG Global Energy Partners and OMERS Infrastructure as well as from General Electric Co. It’s still searching for mid-level investment professionals, according to people with knowledge of its staffing needs.
The firm’s second foray into infrastructure is already more successful than its first. It tried raising at least $2bn after the global financial crisis, but eventually allowed that team to spin out in 2011 to form Stonepeak Infrastructure Partners, which is in the final stages of raising as much as $7.2bn for its third fund. Blackstone may be catching up to KKR & Co, which recently held a first close of $6bn on its third infrastructure fund.
Another rival, Carlyle Group, is raising a $2.5bn infrastructure fund while the senior partner anointed to lead Apollo Global Management’s efforts in the sector is leaving the firm.
For now, Blackstone remains in the shadows of the industry’s biggest players, Global Infrastructure Partners, Brookfield Asset Management and IFM Investors.
The next funds being raised by GIP and Brookfield may each reach or top $20bn, while IFM’s open-ended global infrastructure fund managed $23.1bn as of May 31.
Besides competition from other funds, Blackstone could find itself facing off against longtime infrastructure investors such as Canada Pension Plan Investment Board, which had C$28.6bn ($21.5bn) in the sector as of March 31.
The fund, which intends to allow its investors to contribute additional cash into certain large deals, is yet to put any of its capital to work but has been actively pursuing opportunities including a stake in APM Terminals – a ports business owned by Danish shipping company AP Moller-Maersk – and a 49.99% holding in mobile transmission towers owned by Altice Europe NV, according to people familiar with the matter.
KKR triumphed in the auction for the Altice French towers in a deal announced last week while APM Terminals has since decided not to sell a stake, people with knowledge of the matter said.
