Blackstone’s secondaries group targets infra’s fundraising boom

Strategic Partners, a secondaries-focused investment group within Blackstone, closed fundraising this week for the largest infrastructure vehicle ever to target this growing corner of the secondaries market.

At $3.75 billion, Strategic Partners Infrastructure III is a continuation of the group’s strategy that targets secondary fund transactions. The firm’s previous investment vehicle, Strategic Partners Real Assets II, closed in April 2018 on $1.75 billion and acquired fund stakes from LPs, and sometimes GPs, investing in sectors including utilities, power generation, renewables, transportation, waste management and energy.

In the opaque world of secondaries investing, where transactions often occur without much publicity, groups like Strategic Partners acquire either single investment interests or entire portfolio stakes from LPs seeking early fund exits. In some cases, the fund’s manager will sell its own position in the fund.

Strategic Partners, which was founded in 2000 by Stephen Can and operated under Credit Suisse’s investment arm until Blackstone purchased the group in 2013, has turned the trade into a $50 billion enterprise with funds invested in private equity, infrastructure and real estate.

According to Verdun Perry, who is now global head of Strategic Partners and a senior managing director at Blackstone, the emergence of a secondaries market can signal the maturity of an asset class.

“The amount of primary dollars raised will ultimately impact the secondary market,” Perry told Infrastructure Investor in an interview on Wednesday. “As you see more money allocated to infrastructure in the form of primary commitments, you can expect to see the secondary market grow.”

Over the past decade, capital raising for infrastructure has continued to reach new heights. Data released by Infrastructure Investor shows $56.8 billion raised for the asset class during H1. Blackstone also manages an open-ended infrastructure fund, which closed its first round of fundraising on $14 billion last July.

Mark Bhupathi, a managing director at Strategic Partners, added the infrastructure secondaries market is poised to continue its growth “based on the historical trend of fundraising in this asset class”.

Perry and Bhupathi declined to disclose specific sectors that Strategic Partners is targeting with the group’s new fund but said the investment vehicle’s main draw is its patient if opportunistic capital.

“We’re buying funds that invested anywhere from a couple years ago to 10 years ago, so think of the opportunity set as what GPs were investing in then,” Bhupathi explained. “When we invest, these assets have stabilised.”

In other words, Perry added, infrastructure secondaries is able to target “mitigation of the J-curve”.

“The execution risk involved in a greenfield project is mitigated once it’s completed,” he said. “Once all of the licenses and permits are in place and it’s built out, operating and yielding, it’s a much different analysis and risk-return profile.”