The Blackstone Group is offering limited partners a change in the terms of its sixth buyout fund, shifting to an 80/20 transaction fee split in exchange for a slight increase in the management fee, according to a person with knowledge of the situation.
Blackstone declined to comment.
The firm, which anticipates closing Fund VI on $13.5 billion, agreed to the term change for the Oregon Investment Council, which committed $200 million last week after negotiating the fee split.
Tony James, Blackstone’s president, said during an OIC investment meeting the firm would offer other LPs the same deal, according to an audio transcript of the meeting.
“We created a special fee structure for Oregon. If we’re lucky enough to get your support [on Fund VI], we will need … as a matter of ethics, to offer it to other LPs,” James said.
Original terms on Fund VI allowed LPs to use 65 percent of the transaction fee to pay down the management fee, known as an offset. The fund has a 1.5 percent management fee on commitments up to $7.5 billion, 1 percent of commitments above $7.5 billion and afterward, .75 percent of invested capital.
It’s unclear how much the management fee would go up under the new transaction fee split. A spokesperson for the OIC declined to comment on the terms.
We created a special fee structure for Oregon. If we're lucky enough to get your support [on Fund VI], we will need … as a matter of ethics, to offer it to other LPs.
LPs have been requesting an 80/20 fee split or even using 100 percent of the transaction fee to offset the management fee. Guidelines published last year by the Institutional Limited Partner Association, a trade association for limited partners to private equity funds, called for the transaction fee to go 100 percent toward the “benefit of the fund”.
Oregon established its own set of guidelines last year that it has been using when considering private equity investments. Oregon’s guidelines say that “fees should be reduced for all but the most modest funds with larger funds taking larger reductions in ‘standard’ fees, acknowledging economies of scale”.