Blackstone Group is preparing to hold a $5 billion first close for its debut infrastructure fund, which could happen as soon as this week, a source familiar with the matter confirmed to Infrastructure Investor.
The first close will include $2.5 billion from Saudi Arabia’s Public Investment Fund, as part of a fundraise-matching agreement, and $2.5 billion from other investors, the source said. Blackstone launched its $40 billion open-ended infrastructure vehicle last May in Riyadh alongside PIF, a Saudi sovereign wealth fund, which committed to match dollar-for-dollar up to half that amount. The Saudis will be minority investors in transactions, the source said.
The New York-based firm is aiming to raise $10 billion to $15 billion before next March and will hold additional closes until then, according to the source. Blackstone will deploy all that capital over a three- to four-year investment period and then fundraise again, the source explained.
Blackstone declined to comment for this story.
On an earnings call in February, then Blackstone president Tony James said they would have a “normal, mortal-sized” first close to “get started in the business”. Still, Blackstone’s first close is nearly the size of of some of this year’s biggest fundraises, such as KKR’s third infrastructure fund, expected to close on $7 billion, or I Squared Capital’s sophomore effort, set to close on $6.5 billion.
The firm, known as a private equity and real estate powerhouse, is looking to capitalise on the trillions of dollars of investment estimated to be needed to upgrade US infrastructure. Their strategy is to invest $1 billion or more in primarily North American core and core-plus assets, according to public pension documents. Thirty percent of the fund is earmarked for Western European assets and a small portion will be invested in greenfield projects. Blackstone is targeting a 10 percent net internal rate of return, the documents show.
Blackstone announced the fund last year as US President Donald Trump and business leaders, including the firm’s chairman and chief executive Stephen Schwarzman, visited Saudi Arabia to promote trade between the countries. Its push into infrastructure coincided with Trump and the Republican-led Congress attempting to pass a large-scale spending bill to invest in and rebuild US infrastructure.
That effort has now fizzled out with little to show, but Blackstone executives have maintained that government inaction will not prevent them from investing a successful fund. “We don’t need any improved legislation or regulatory system to invest this fund really well,” James said in February.
Known commitments to the Blackstone Infrastructure Partners fund include $500 million from Pennsylvania Public School Employees’ Retirement System, $100 million from New Mexico State Investment Council and $75 million from Parochial Employees’ Retirement System of Louisiana.
Documents from Pennsylvania PSERS and NMSIC show Blackstone offered a two-year, 25 percent fee break for commitments made before first close.
Blackstone’s first infrastructure fund follows an attempt in 2011 to raise a $2 billion vehicle, which resulted in its team spinning out to form Stonepeak Infrastructure Partners. That firm is near to closing its third infrastructure fund on more than $7 billion.
Blackstone’s current infrastructure group is led by Sean Klimczak, who since 2005 has worked on the company’s energy and power investments. Former General Electric executive Steve Bolze was hired in August to head portfolio operations and asset management. Wallace Henderson, formerly of EIG Global Energy Capital, and Sebastian Sherman, from OMERS Infrastructure, are the last two senior managing directors Blackstone has brought in to help run its nascent infrastructure programme.