Looks like private equity firms are on a profit trip as Blackstone Group LP raises $17 billion from its investors in merely 7 months for its latest global buy out fund called as the biggest first close of a buyout fund ever.
News leaked out of the American multinational company Blackstone Group LP (BX, Financial) about company’s success in securing $17 billion for its latest global buyout fund as per sources close to the company. The initial target was kept at $16 billion and President Tony James mentioned $17.5 billion as its maximum limit last month. Shares of Blackstone rose 1.5% to $42.36, which was an increase of as much as 48% from last year.
Private Equity’s success story
Founded in 1985, the New York based company has operations in Private equity, alternative asset management and financial services. In the past, the Blackstone Capital Partners VI was able to raise $15.2 billion and reported a net internal rate of return (IRR) to be 14% by the end of March whereas the Blackstone Capital Partners V Fund witnessed an IRR of 9% in $21.7 billion till its closure in January 2011. Among these, the Blackstone Capital Partners VI was able to get investments from some of the world’s largest private equity investors like California Public Employees’ Retirement system and the Canada Pension Plan Investment Board.
The current fund named as Blackstone Capital Partners VII was expected to reach its target of $17.5 billion by second quarter. However, the collection of $17 billion in the first three months only has come as a huge success for the company. There was no official comment received on the news, as it is not allowed to disclose any details until the fund stops collecting money from investors. The fund is now the largest private equity fund to be raised and has joined the league of Global Management LLC‘s (APO, Financial) flagship Fund of $18.4 billion completed in January 2014. It is also the largest for Blackstone in the last 30 years.
Impression of Private equity
Somehow, private equity has always received doubtful looks from conventional investors. They think that private equity firms may overpay for companies due to an increase in equity values. Blackstone for instance had more than $20 billion in available capital by March end for investing in private equity.
However, Blackstone is changing notions about private equity. It also has other success stories to narrate, one being its venture into hospitality industry through Hilton Worldwide Holdings Inc. (HLT, Financial), which went public last year. The share price of the new group reached almost 2.8 times its initial investment, which again was, raised through private equity and real estate divisions. In total, a gain of $12 billion made it the largest private equity gains of all times.
Private equity funds are destined to hold bigger deals and mint money. Talking of Blackstone, a rise of 160% goes out in its name in raising private equity profit in its first quarter. Other institutional funds like pension funds have been able to yield billions of dollars through private equity funds. The hard part however is that these private equity firms have still not found suitable acquisition targets losing out to corporate buyers who can easily afford to bid higher. In an effort to strike deals, almost $286 billion were stuck in the buyouts last year equaling to 8.2% of all merger activity as against 2013’s 9.7%. Another reason why these deals have become less attractive financially is the rise in asset prices in recent times.
Impacting future funds
Going forward, the Blackstone Capital Partners VII fund response is expected to impact its latest global real estate fund, which was announced earlier this year, which has already reached a figure of $15.8 million. Blackstone has an advantage over other equity firms for being a global player while others raise funds, which are location specific.
