Investors in The Blackstone Group’s fourth fund are booking a return of 3.5 times their original investment, according to one limited partner, while the firm’s 80 investment professionals will net carried interest of $3 billion (€2.2 billion), a 20 percent share of the fund’s $18 billion profit.
The investor said: “This fund has shot the lights out. If anyone doubts the reality of mega funds economics, then they could do worse than to look at BCP IV’s performance. It is sensational.”
Blackstone, which is in a quiet period ahead of floating part of the management company, declined to comment on the fund. According to its S-1 filing, the registration document lodged with US regulator the Securities and Exchange Commission ahead of its placement, its private equity funds have generated an IRR of 22.8 percent net of fees.
Blackstone’s executives contributed $150 million to the firm’s fourth fund, which closed in 2002 with $6.45 billion of commitments. This means they have made 20 times their initial investment.
BCP IV got off to a flying start with partial exits from engineering group TRW Automotive and water treatment business Nalco, which generated an IRR of 181 percent – a 2.6 times return on money invested.
One notable success for the fund was Celanese, a German chemicals company which Blackstone took private for €3.1 billion in April 2004, in what was then the largest such deal ever seen in Europe. BCP IV invested $400 million of equity; shortly after Blackstone was able to pay itself a $300 million dividend following a high-yield issue, and in January 2005 it floated the company, valuing its remaining stake at $1.54 billion. This meant a return of 4.6 times its money within nine months – an IRR of 832 percent.
In July 2004 Blackstone bought Foundation Coal, a US coal-producing business, alongside First Reserve and US group AMCI. Six months later, its original $80 million equity stake was worth almost five times that amount, following a listing on the New York Stock Exchange.
The $1.16 billion sale of satellite business New Skies to SES Global in December 2005, just 13 months post-acquisition, was another profitable exit – the buyout firm had already virtually recouped its initial $163 million outlay from a dividend and a partial flotation prior to the sale.
Other big wins included Extended Stay, a hotel group bought for $1.9 billion in May 2004 and sold for $8 billion in April this year, and Spirit Group, sold to Punch Taverns in December 2005 for about $4.7 billion.
(Additional reporting by James Taylor)