Blackstone Performance Kinda Sucks, No?
Was looking at FY earnings and with all the focus on RE and infra, flagship seems to be kinda not great, right?
Their GFC fund barely hit hurdle, which, fine and maybe even impressive, they’re a big fund during a deep recession. But since:
BCP VI: 2.2x / 12% net. Not terrible, and maybe even expected value for a fund that’s that large. Fine.
BCP VII: great exits so far, but man those hold times are getting stretched. Those IRRs may dip to two points below VI with how hard exits are rn. Current marks have them at under 2x, which will surely rise a bit, but the vintage is eight years old
BCP VIII: not even 60% invested so perhaps not too meaningful but still, it’s been 4 full years now. Have had barely any meaningful exits and current marks are 1.4x.
BCP IX: this is what most interested me. They were claiming a 30 bil goal earlier and haven’t reached the 18 mark. There’s a material chance it doesn’t hit the 25.6 mark of the previous fund.
Why isn’t this talked about more? A fund of this size looking like it’s going to shrink and not having one firm with blowout performance since a 2002 vintage would seemingly be mocked on these forums if it were anyone else. They’re not going anywhere, but maybe having 40 different strategies hasn’t been the best use of talent?
All true but they're winning the game they're playing which is the AUM game
No doubt but people on here love to hate on multi strategy MFs that have flagging flagship performance. Think of the “is TPG going under” flame threads
If you expect bx to have blow out performance, you dont understand their business and you dont understand the business.
1.8-2.2x is exactly what it says on the nutritional label when LP read the Bx Crunch cereal box.
1.8 is 10% gross over 6 years , which doesn’t clear hurdle net. I’m all for the idea that the sweet spot for funds that big is low 2’s stretching to 2.5x in a great fund, but BX’s performance appears to lag that
The hurdle doesn't start ticking day 1 of fund closing. It starts once you deploy so the 1.8-2x achieved will almost always be above hurdle because the capital is deployed over a period of time
IRR is a mostly irrelevant metric now because of financial engineering these firms do for marketing. Most have a fund line that they utilize to compress the effective hold and juice the IRR.
As others have already said, Blackstone is not a “performance” product. It’s a “sleep easy” product.
You’ll never invest in a Bx PE fund and hit a 3.5x. That’s not how the vehicle is engineered that’s not the type of risk they take. In fact, if a Bx fund does a 3.5x, if you’re a thoughtful LP, you should be super concerned about it. And will want them to explain themselves.
The evaluation of a megacap PE fund is based on how steady the MOICs are and how they compare to other mega cap PE funds of the same vintage. Not absolute MOICs vs. a theoretical 20% target return which is like 20+ years obsolete as a framework.
It’s like saying: for all the hype around KKR, their infrastructure fund hasn’t funded a single blockbuster Hollywood movie. That is correct. And your statement of Bx PE returns being quite mediocre is also correct.
Its a safe investment for public pensions to put 200M into and get a 10-12% net
Fixed it for you, it's the only investments many can make as their check size is so stupid big they have no choice but to only invest in MFs like BX. Most large pensions can't be more than 5/10% of a fund depending on their compliance so they have to go with $5b+ funds and really heavy into the larger funds like BX.
The power of 2 > the power of 20….
Due to size their returns would likely slowly revert to mean. Plus they’ve become AUM focused rather than IRR focus prolly due to size, it’s why they’re entering other areas like private credit. They’ll still manage to raise money as no one got fired for giving money to blackstone, even if balckstkne returns aren’t that great.
What is the goal of the firm?
To enrich (create value for) the shareholders.
Who are the shareholders? Probably Steve and the founders. And other people of course, but the big ones.
When firms start as classic buyout partnerships the focus is on investment level economics because this is what enriches the founders.
When you go public now everyone has shares and the shares are valued by the public markets as a multiple on your earnings. But your management fees are worth a lot higher multiple than your performance fees, because of the recurring nature.
So the focus for public firms, and larger firms in general that are heading that way, is not on investment level economics anymore but rather AUM.
How do you grow AUM aggressively? Expand strategies, develop portfolio management, be the one stop shop for as much capital an allocator needs to deploy in whatever ways they want it deployed, we’ll take it all, make your day easy today.
I know less about allocator incentives but it seems they don’t really need the 20% gIRR as much as they need to hit their “assumed rate of return” on the dot (perhaps better understood as they need to not miss their return hurdle, which is a different thing) while being able to scale deployment.
The upshot is that the “AUM eater multistrat” that returns on a net basis something in the realm of a decent well run business’ ROIC is the public MF business model these days.
Spot on.
There are very few places to park dollars in PE at the scale some of these huge pensions need in order to their goals.
Anywhere very large will be more of an AUM gatherer due to the incentives explained above. You can't expect LMM/MM performance out of a huge fund...
Edit -- multiple people already made this point
Original comment: Blackstone is not in the IRR game they are in the AUM game
Subjective, but Blackstone's performance may not meet expectations for some. Factors like market conditions, strategy, and individual risk tolerance influence perceptions. Research and consult experts for informed opinions.
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