Blackstone becomes latest blue-chip manager to tap secondaries market

The firm is set to close a deal to move one asset from its $7bn 2012-vintage Tactical Opportunities Fund into a continuation vehicle.

Blackstone, the world’s largest private equity firm, has become the latest blue chip manager to run a secondaries process on one of its funds.

The New York-headquartered firm is running a single-asset restructuring on its $7 billion 2012-vintage Tactical Opportunities Fund, according to three sources familiar with the matter.

The deal is worth at least $600 million in net asset value and involves moving Phoenix Tower International, a wireless infrastructure operator, into a continuation vehicle so that Blackstone can have more time to manage the asset into the next phase of growth while giving liquidity to limited partners that wish to exit, the sources said.

Blackstone owns around 62 percent of PTI, one of the sources said.

The deal, which launched at the beginning of the year, is nearing the final stages and secondaries buyers have been selected, according to two of the sources. The identities of the buyers is undisclosed.

Park Hill is advising on the deal, two of the sources said.

The deal would be one of the largest single-asset restructurings to close. TDR Capital’s process on its 2007-vintage fund, involving British pub chain Stonegate Pubs, involved almost $1 billion in NAV, as sister publication Secondaries Investor reported in October.

The private equity giant joins the likes of Warburg Pincus and PAI Partners, which have both launched single-asset restructurings this year. Such deals remain a small part of the overall GP-led market: just 9 percent of complex secondaries deals last year involved single assets, according to data from advisory firm Evercore.

Blackstone acquired Boca Raton-based PTI in 2014. The firm manages over 6,000 towers, 986 kilometres of fibre and more than 80,000 other wireless infrastructure and related sites throughout the US, Latin America and the Caribbean, according to its website.

Last July Blackstone agreed to sell a minority stake in PTI to John Hancock Life Insurance – a division of the Canadian insurance giant Manulife Financial Corporation – which used its $2 billion John Hancock Infrastructure Fund to fund the deal.

Advocates of single-asset deals see them as beneficial to all sides. GPs can be granted more time and capital to develop the asset and can maintain a stream of fees, while limited partners can cash out for a healthy sum to a secondaries buyer or roll over in hope that the asset will eventually exit for a more impressive valuation. The new vehicle will typically have more LP-friendly terms than traditional two-and-20.

“Within these transactions, the acquiring vehicles typically pay lower fees and carried interest to the GP than the standard 2 percent and 20 percent, respectively, that a third-party GP would take,” Yaron Zafir, head of secondaries at advisory firm and placement agent Rede Partners, wrote in a guest commentary for Secondaries Investor. “This means lower gross to net spread for the backing secondary investors, allowing them to pay a higher price.

By keeping the same GP and allowing it to continue to execute its existing value creation plan, investors in the acquisition vehicle are mitigating many of the risks associated with a change of control, he added. “Lower risk typically means higher pricing.”

Others believe such deals reward failure. “For my part, I find [single-asset deals] completely absurd,” Olav Ostin, managing partner of venture capital directs specialist TempoCap, said on a panel at the IPEM conference in January. “If you can’t sell the asset, there’s a problem with it.”

Blackstone’s Tactical Opportunities unit makes opportunistic investments in deals that are time-sensitive, complex or in dislocated markets where it believes risk is fundamentally mispriced, according to the firm’s website. The group is led globally by David Blitzer.

Tactical Opportunities Fund closed in 2013 including a $750 million commitment from New Jersey Division of Investment and commitments worth $500 million from each of the California Public Employees’ Retirement System and New York State Common Retirement Fund, according to PEI data.

Blackstone has since raised two Tactical Opportunities funds: a $6.7 billion second vehicle in 2015 and a third vehicle which launched in 2017 which has raised at least $4.1 billion so far.

The firm had $512 billion in assets under management as of 31 March, according to its latest earnings report.

Separate spokeswomen for Blackstone and Park Hill declined to comment.