(December 11, 2011) — Blackstone Group, the world’s largest private-equity company, has won as much as $1.8 billion in pension-fund commitments from the New Jersey Division of Investment, the latest sign that the fundraising environment, at least for the largest private equity players, is improving.
The deal, according to a memorandum detailing the plans obtained by Bloomberg, will likely offer New Jersey “significant benefits,” including expanded investment opportunities and discounted fees. The New Jersey pension fund, which has about $66 billion in assets, is often considered a leader in investment in alternative assets, such as private equity, hedge funds, and real estate.
Pension funds are the largest clients of private equity firms, and as institutional investors continue to seek large private equity firms for their expertise in managing more complex investments such as alternatives, Thomas Lynch, managing director of consulting firm Cliffwater, a specialist in alternatives, told aiCIO: “It’s clearly a trend — we will see more of that with plan sponsors try to reduce costs, as well as reduce relationships,” adding that he foresees a major consolidation in the private equity landscape, with the largest private equity firms standing to gain.
According to Bloomberg, the state may invest up to $1.5 billion in four newly created separate accounts to be managed by Blackstone and $300 million in three of the firm’s existing funds. “This represents the largest single-year commitment by any investor in Blackstone’s history,” Peter Rose, a spokesman for the New York-based firm, said in an e-mailed statement.
The private equity firm reportedly turned down a fundraising deal with the Teacher Retirement System of Texas (TRS). In November, private equity firms Kohlberg Kravis Roberts (KKR) and Apollo Global Management were selected to manage $6 billion for TRS. Each firm announced that it would receive $3 billion from TRS to manage in separate accounts devoted solely to the scheme. “…The Board of Trustees for the Teacher Retirement System of Texas (“TRS”) authorized the TRS executive director and chief investment officer to negotiate and execute a fund-of-funds master limited partnership agreement and commit up to $3 billion with Apollo Global Management, LLC (“Apollo”) and Kohlberg Kravis Robert & Co (“KKR”), each individually,” the public pension fund said, noting that the agreement follows the successful model for strategic relationships in the global public markets funded by TRS three years ago, which over its initial three years produced first quartile investment results.
The Blackstone deal also follows news from Dow Jones LP Source, which released findings in July showing that US and European private equity, venture capital, and buyout funds all enjoyed healthy fund-raising levels in the first half of 2011. “After three consecutive years of declining fund-raising, the industry has finally begun to dig its way out of the crater created by the US financial crisis in late 2008,” Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst, said in a July release. “There’s an abundance of fund managers with strong track records that are back in marketing mode and investors appear to have regained some level of confidence in the asset class.”
Click here to watch an aiCIO video with Cliffwater’s Thomas Lynch speaking on the evolving relationship between institutional investors and large private equity firms as investors seek added expertise with more complex investments.