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

Has anybody heard about this group? They're raising a $10-$20bn fund and I'm interested to hear any news or gossip that fellow monkeys may have

Comments (25)

Nov 27, 2018

You sure it isn't BlackRock? https://www.bloomberg.com/news/articles/2018-02-08... Very similar company names, with Blackstone lending initial credit line to BlackRock, but the former is a regular PE player whereas the latter rather nascent.

Nov 27, 2018

Yes, oops, fixed

I am wondering about BlackRock like you are mentioning, getting into the direct investing space to compete with other large cap funds.

How do you think it will go? I've seen conflicting sources on whether it will be majority or minority investments, but I have to imagine at this size, and because Blackrock PEP already does coinvest, it will likely be majority stake buyouts?

Nov 27, 2018

Targeting >$10B AUM for a new product seems audacious to me, pretty telling of which point in the cycle we are at.

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Nov 27, 2018

The more I read about them, the more there is mention of minority investments. Why would they only make minority investments with such a big fund? What could they possible be up to?

The only other place I know that makes minority investments like that, at that scale, is Carlyle TMT. I don't understand the strategy, if anyone can opine.

Nov 27, 2018

What does everyone else think about this: I think that the only strategies where they're seeing returns in the ballpark that they want are some of the quant trading strategies. I think the returns in PE are attractive enough that they want to be able to offer those to investors and not just FoF. This seems very wise to me. Thoughts?

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Dec 14, 2018

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.

What's important to realize is that there is a universe of deals out there that look worthwhile but simply require more capital than the existing private equity fund model can support.

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
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Dec 18, 2018

I will tag onto your comment and say that in my mind, Blackrock is trying to take their brand in the allocator universe into private equity.

Instead of taking the highly-concentrated portfolio approach that traditional PE is currently taking, it seems to me that Blackrock is applying a "buy-the-index" approach to buyouts. So instead of having 8-10 investments in a typical PE fund, there will be 20-50, all in large-cap buyouts.

When you continue to read about the shrinking investable universe of public equity, it stands to reason that an asset manager was eventually going to clue into that fact and find an alternative investable asset to compensate.

    • 2
Dec 18, 2018

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

Pardon my ignorance, can someone explain what this means?

Dec 19, 2018

Basically, given that the co-investor is putting extra capital to help the acquisition take place, they pay a lower fee compared to what LPs pay on the fund that led the investment (think, LPs pay the traditional 2/20 and co-investors will pay 1.5/15)

Dec 14, 2018

Often a sponsor will let a co-investor into a deal on a cheaper fee model than the standard 2-and-20 that a Limited Partner in that firm's fund pays.

The other poster mentions 1.5-and-15; the market's moved even further from that. A lot of the guys outside the top-10 names are letting co-investors in on a 1-and-10 or even a fee-free basis.

It makes sense. If you're a GP and you've identified a high-quality asset that requires double the firepower you can bring to the table, if you think you've got a 3.5x return underwritten that will generate you $200m of performance fee income on your equity check .... you ought to be completely incentivized to do whatever you have to to secure the co-investor that gives you the equity firepower to do the deal.

This is what people refer to with the term 'blended fee rate'. A Limited Partner that gave the firm $100m in a fund subscription at 2-and-20 but also co-invests $100m over the lifespan of the fund at 1-and-10 has now deployed a total of $200m at a blended rate of 1.5-and-15.

    • 4
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Dec 15, 2018

One key trend that has emerged from private equity in recent years is the life of the investment vehicle that would have 2-4 year investment periods followed by 3-5 year hold periods (typically with an 8-10 year maximum). The long-term hold period allows for a new style of investing, thus there will be new opportunities that traditional PE firms will be unable to compete for today. If it weren't for such a competitive market, I'd imagine less of these long-term vehicles today would even be considered internally, let alone broadly marketed. For example, most sponsors would much rather achieve a 20% IRR on a 3-5 year hold period vs. a 15% IRR on a 15 year hold period. The one upside of the long-term vehicle is the steady fees you will earn which helps for stability and longevity.

Additionally, it looks like BlackRock is assembling a team from the blue chip PE co-investment investors (CPPIB, PSP, etc). Should be a successful raise given BlackRock has established relationships with every major investor in the world.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Dec 25, 2018

In this market when finding good assets is the hardest thing, I'll take 15% for 15 years any day.

Dec 16, 2018

"GEPIF III is the third fund in the Global Energy & Power Fund series. In June last year, BlackRock acquired the First Reserve Energy Infrastructure Franchise"

https://www.marketwatch.com/press-release/blackroc...

Dec 18, 2018

Has Long Term Private Capital closed or participated in any club deals yet?

Dec 25, 2018

Was Long Term Capital Management not available as a name?

ayyy lmao

Dec 29, 2018

how widely recognized are canadian pensions in the US LP universe

Dec 30, 2018

Very. CPPIB, OTPP, CDPQ, all very active LPs and co-investors in the US

    • 1
Dec 15, 2018
Comment

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.