Blackstone’s James: Infra fund to build up to $40 bln over a decade

Blackstone Group President and COO Tony James expressed confidence that the firm’s infrastructure fund will eventually reach its lofty $40 billion target, despite reports that the first close will come in below $10 billion.

“That $40 billion target is a very long-term target,” James said on a call with reporters to discuss Q4 2017 earnings. “We never expected to come close to that in the first close.”

James was asked about a memo from the Pennsylvania Public School Employees’ Retirement System (PSERS), which stated that Blackstone Infrastructure Partners “is seeking equity commitments of $7.5 billion during its initial fundraising phase.” Bloomberg previously reported that Blackstone was looking to raise as much as $10 billion for a first close, including $5 billion in separate accounts.

James said Blackstone would raise more money once the first round of capital is invested: “We’ll build our way up to that $40 billion over the next decade or so.” The PSERS memo characterized the fund as “an open-ended perpetual life vehicle,” the size of which “will increase commensurate with deal capacity and investor commitments.”

The fund is anchored by a $20 billion pledge from Saudi Arabia’s Public Investment Fund, which will incrementally match LP commitments through a parallel vehicle. The GP commitment is 2.5 percent of the fund up to $500 million, according to Bloomberg.

The fund will invest in energy infrastructure, water and waste, transportation and communication assets, mostly in North America. Significant co-investment offerings are expected, according to PSERS, to meet the capital needs of such projects. The investment team is led by Sean Klimczak, previously Blackstone’s point man for power generation and natural resources. Steve Bolze, a former GE executive, will be head of portfolio operations and asset management.

On an investor call, CEO Stephen Schwarzman said Blackstone is “still a few months away from our first close, and it’s too early to give an estimate for that yet.”

Asked how a major infrastructure package would impact the firm’s plans, Schwarzman said the fund is geared to the private sector, because of the difficulty of doing business with the public sector and the lack of cash flow in public assets. But he said the firm was open to additional opportunities: “The question is, how much money would go into this?” Public-private partnerships “would be sort of the cherry on a sundae for us,” Schwarzman said, adding that improvements to the process of developing infrastructure would “be very good for this overall asset class.”

James said that, unlike the country, the fund is not in need of an infrastructure bill. Given the protected, even quasi-monopolistic nature of infrastructure sectors, “there’s a ton of targets out there where we can bring our value creation capabilities, which are honed in highly competitive private-sector industries, and apply it to this industry and create tons of value, even in the existing regulatory scheme.”

Action Item: Check out PSERS’s investment memo on Blackstone Infrastructure Partners here.

The ticker and trading information for Blackstone Group is displayed at the post where it is traded on the floor of the New York Stock Exchange (NYSE) April 4, 2016. REUTERS/Brendan McDermid