Blackstone has closed the first phase of fundraising for its debut open-ended infrastructure fund on $14 billion.
The firm’s founder, Steve Schwarzman, said on an earnings call Thursday that the firm had collected commitments from more than 80 investors, which includes a cornerstone one from Saudi Arabia’s Public Investment Fund, which agreed to match dollar-for-dollar the amount of capital Blackstone collected from other LPs. According to a source familiar with the fundraise, 50 percent of investors committed to Blackstone Infrastructure Partners are new to the firm.
The close is the largest ever for a first-time infrastructure fund and immediately puts BIP among the industry’s largest investment vehicles (click here for a full list of mega-funds) at a time when interest in the asset class is at an all-time high. According to Infrastructure Investor data, unlisted infrastructure funds, which make up the lion’s share of the industry, have raised $37.6 billion in 2019 and are on pace to collect more than $100 billion by the end of the year.
“Every one of our businesses is growing, and we also continue to successfully launch and scale new ones, which quickly become global leaders in their own right,” Schwarzman said on the earnings call.
New York-based Blackstone plans to invest the fund mostly in US infrastructure, across energy, communications, transportation and water and waste. The firm announced its first two deals earlier this year, agreeing to a $3.3 billion investment in US midstream company Tallgrass Energy and acquiring a minority stake in Carrix, an operator of ports and rail yards.
‘Permanent capital vehicle’
In 2017, Blackstone, a heavyweight in private equity and real estate, announced the launch of BIP, Saudi Arabia’s dollar-matching cornerstone commitment and a goal to raise $40 billion in infrastructure capital. The launch came as Schwarzman traveled to Riyadh alongside US President Donald Trump and other business leaders to drum up trade.
It’s unusual for one LP to effectively make up 50 percent of a fund, especially one that could be worth $40 billion, but Blackstone has maintained Saudi Arabia’s PIF will not influence investment decisions and will hold less than 50 percent stakes in assets.
BIP’s scale will allow Blackstone to chase the largest infrastructure deals in the market, and pension documents about the fund show the firm plans to make investments of $1 billion or more while targeting 10 percent net returns.
BIP is described as a “permanent capital vehicle”, and, like other open-ended funds, will go through periods of fundraising and then capital deployment.
In the first fundraising stage, Blackstone marketed BIP with a 1 percent management fee based on the net value of BIP’s assets and 0.5 percent on uninvested capital, with a six-year lock-up period. The firm offered a two-year, 25 percent first-close fee discount.
Before holding a $5 billion first close last June, Blackstone increased BIP’s hurdle rate from 5 percent to 6 percent on 12.5 percent carried interest after investors said the hurdle was too low.
Sean Klimczak, who joined Blackstone in 2005 and has spent over a decade working on the firm’s energy investments, is leading the fundraise. He’s joined by former General Electric executive Stephen Bolze, who was hired in August 2017 to head infrastructure portfolio operations and asset management.
Blackstone previously attempted raising a $2 billion infrastructure fund in 2011, which resulted in its team spinning out to form Stonepeak Infrastructure Partners. Last July, Stonepeak closed its third infrastructure fund on $7.2 billion.
For a full list of Blackstone’s funds, please click here.