BlackRock Raising a $10-$20bn direct PE investment fund, “Long Term Private Capital”

For some reason the formatting is broken and I don't know if this will show up as a reply to a prior comment. I.Am.Liquid. DalaiLama Making Gravy Did I get ghosted

I.Am.Liquid.:

Multiples at all-time highs and other late cycle jargon. If this strategy had several good funds, the target size would be more justified in my opinion. This team probably doesn't have much of a track record together, giving them $10-20B doesn't make a whole lot of sense to me. There is so much capital out there right now and this just seems like BlackRock looking for a cut.

Just as Masa Son is able to accurately state that a rising crop of startups will enter a growth stage that requires $5-10b of capital just to get them to late-stage and thus a fund that wanted to own a meaningful stake in 20-30 businesses (a common target portfolio size for venture capital) would need to be $75-150b, so also can a private equity guy point out that just five $20b+ TEV transactions would require a $15-25b fund (assuming common leverage levels).

(For those wondering about the startups the Vision Fund is targeting, these are companies whose idea is big enough that it would take that much money to get the business to a point where the founders would willingly consider an acquisition offer or public listing, now that they've actualized all the goals immediately identifiable and achievable from inception. Said differently, some businesses getting launched now have goals from the start that take inordinately large amounts of capital to attain.)

Look at the Dell EMC deal: $67b. The original Heinz ($23b) and subsequent Kraft ($55b) deals. Then look at everything JAB is doing creating a new empire in beverages. Also Blackstone's Thomson-Reuters deal ($20b). Looks like another one shaping up with Blackstone leading a club deal for Arconic.

Half of those deals have a sophisticated GP leading the charge who has to reach into other people's pocketbooks to get the thing done. Often it's a SWF (e.g. GIC and CPPIB backing Blackstone on Thomson-Reuters).

In those instances, the co-investor usually pays a very reduced fee rate.

Any GP who has a strong enough track record to support a raise of a vehicle large enough to do these deals directly without any co-investment support obviously has every incentive to launch and close said vehicle. A blended 1.3-and-15 (or whatever they get negotiated down to by the LP universe) looks awfully good on a $20b vehicle.

BlackRock has a lot of reasons to get in the game. Sure, they may not have a cohesive team that invested together for over a decade. They do however have the ability to assemble a bunch of all-stars from other shops who are willing to give it a go, and they also have enough balance sheet strength to build out robust administrative, middle office, and back office infrastructure to empower those guys to operate from a fortified position.

You're overthinking the majority vs. minority investment angle. It doesn't matter whether they target control or non-control positions. Reading the Bloomberg article, they don't seem to even be focusing on much of what I outlined above, but rather on long-duration bets (15-20 years) where their patience and high-caliber brand-name will win them entree into deals that other sponsors might not be allowed into.

An example situation would be a closely-held third-generation family business that now has a couple different branches or family members with sizable ownership stakes instead of one patriarch owning the whole thing. One family member might be sick of dealing with the whole thing and want out.

Normally the other family members would hate to let a private equity shop in given the traditional sponsor playbook of cost optimization, an aggressive add-on acquisition scheme, and the like. Someone as well-regarded as BlackRock, especially with a 20-year vehicle that proves they're in it for the long run, would assuage a lot of those fears and look a hell of a lot better than an Apollo or Fortress who are known for a less friendly methodology.

All in all, there's a lot to like from BlackRock's perspective:

• they have a broad and far-reaching brand within the allocator universe that happens to be well-respected

• the private equity business offers a lucrative guaranteed fee model and even more lucrative variable fee model

• a passive, buy-and-hold approach can (note: is not guaranteed to) require less ongoing work than an active, control-oriented approach, primarily in that the work is front-loaded on diligencing the asset you will be a minority owner of behind hands-on management who will continue to be the majority owner as opposed to being super in the weeds on managing the thing during your hold period