Blackstone’s Gray: Next flagship ‘far larger’ than predecessor

Blackstone, the world’s biggest private equity firm according to the PEI 300, has closed or plans to close secondaries capital across two strategies this year.

The global juggernaut expects its flagship secondaries programme, Strategic Partners Fund IX, to be “far larger than its $11 billion predecessor”, president and chief operating officer Jonathan Gray said on its second quarter earnings call last week. The firm is targeting a first close for September and will activate the fund prior to year-end.

“On last quarter’s call we said we were highly confident that total inflows would exceed $100 billion again in 2021, the fifth year in a row approaching or exceeding this level,” Gray said on Thursday. “We now expect to approach $200 billion of inflows this year including our pending insurance partnerships.”

Blackstone also held a first close on $769 million for its debut GP-led strategy, which invests alongside GPs that want to hold high-quality assets beyond initial fund terms.

GP-led deals took precedence over other secondaries deal types during the coronavirus pandemic. Total secondaries market volume last year was estimated at around $60 billion, versus a record high of $80 billion the year prior, with GP-led deals comprising 53 percent, according to Evercore’s 2020 full-year volume report.

These transactions will have to contend with the LP side of the market, which is poised to return in 2021. LP stake deals represented 45 percent of planned deployment for the second half of the year, while GP-leds constituted 43 percent, according to placement agent and advisory firm M2O’s latest survey. Capital raised in 2021 for LP stake transactions (55 percent) edged out GP-leds (33 percent).

Blackstone’s secondaries holdings appreciated 17.7 percent during the quarter and 23.3 percent year-on-year, according to documents accompanying its results.

Blackstone gathered $37.3 billion across strategies in the second quarter without raising any of its larger flagship funds, and it has raised a total of $116.3 billion over the past 12 months. Perpetual AUM, which Gray previously said was “like planting perennials”, with their recurring and compounding contribution to the firm’s financials, increased 55 percent year-on-year to nearly $170 billion.

Blackstone early this month agreed to acquire a 9.9 percent stake in AIG Life & Retirement and enter a long-term strategic partnership to manage an initial $50 billion of AUM. When fully phased in, that amount will increase to $92.5 billion.

Additionally, the firm has raised more than $5 billion for its second private equity fund dedicated to the Asian region and expects that vehicle to hit its $6.4 billion hard-cap, Gray said.

Total AUM for private equity increased 21 percent to $223.6 billion with inflows of $7.3 billion in the quarter and $24.1 billion over the past year.

Q2 2021 was its best quarter for fund appreciation in the firm’s history, Gray noted during the call. That was driven by the firm’s “positioning towards fast-growing areas of the economy, including logistics, life sciences, sustainability and tech enabled businesses”, he said.

Blackstone’s PE portfolio appreciated 13.8 percent during the quarter and 52.2 percent over the past 12 months, driven by IPOs of TaskUs and Sona Comstar in Asia, as well as broad-based appreciation across industries and sectors, according to the Q2 earnings statement.

Blackstone deployed $23.8 billion in the quarter, of which about 40 percent, or $9.5 billion, was in private equity. Total exit value stood at $19.6 billion in the quarter and a record $63.4 billion over the past 12 months.

The firm made $704 million in fee-related earnings during the quarter, up 30 percent year-on-year. Distributable earnings nearly doubled from last year to $1.1 billion in the second quarter.

– Carmela Mendoza contributed to this report.