Blackstone making bets on permanent investment funds

“We love to hold our winners”: James

TRD New York /
Jul.July 20, 2017 02:00 PM

Stuyvesant Town-Peter Cooper Village and Blackstone’s Stephen Schwarzman

UPDATED, July 20, 3:15 p.m.: The Blackstone Group plans to focus more of its fundraising on long-term investment funds, the firm said during an earnings call Thursday.

“We love to hold our winners,” Blackstone’s president Tony James said. “Generally speaking we see us moving more and more towards permanent capital vehicles.”

Traditionally, Blackstone has invested in real estate with money from its closed-ended, opportunistic funds — vehicles with a fixed lifespan that require the firm to sell properties a few years after buying them to return cash to investors. But in 2014 it launched its first open-ended core-plus real estate fund, which does not have a fixed end date and focuses on more low-risk assets.

The vehicle, dubbed Blackstone Property Partners, now has $17 billion in assets under management, the company said Thursday. Its biggest acquisition to-date is Stuyvesant Town-Peter Cooper Village, which the fund bought in partnership with Canadian pension fund Ivanhoe Cambridge for $5.3 billion in 2015.

During the call James cautioned that while he expects open-ended funds to grow, he doesn’t see them taking up more than half the firm’s assets under management.

In May, Blackstone launched a $40 billion open-ended infrastructure investment vehicle with the help of a $20 billion investment from Saudi Arabia’s sovereign wealth fund. The firm plans to start raising the remaining $20 billion in the fall and expects the fund to close in 2018.

James said the fund does not depend on federal infrastructure spending bills to pass. “We don’t need any changes in Washington to invest the funds,” he said.

Blackstone’s real estate assets under management increased slightly to $104 billion in the second quarter, up from $103.2 billion a year ago, while real estate fund management revenues increased to $768.2 million from $440.8 million. The company also announced that its non-traded real estate investment trust, launched in January, had raised $1 billion from investors as of July 1.

Correction: an earlier version of this post misidentified Tony James’ quotes as Stephen Schwarzman’s.

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