Blackstone fattens third mezzanine fund to $6.5 bln

Blackstone Group’s mezzanine pool, GSO Capital Opportunities Fund III, reached $6.5 billion in the third quarter with plans to hit its hard cap by year’s end.

The firm marked gross inflows of $14.7 billion in Q3.

The New York alternative-investment manager said it held closings for its seventh secondary fund, its Tactical Opportunities platform as well as its first Core Private Equity fund, which invests over longer periods than traditional funds do.

Chief Executive Stephen Schwarzman said the firm continues to draw money from LPs because it offers better returns.

The average endowment in the U.S. lost 1 percent to 3 percent on its portfolios in the 12 months ended June 30, he said.

“These challenges seem likely to persist for some time, which is causing real problems for LPs,” Schwarzman said Oct 27 on the firm’s third-quarter-earnings call with analysts.

By contrast, over the past five-, 10- and 15-year periods, investments in Blackstone’s flagship funds would have generated net IRRs of 15 percent to investors, after all fees, he said.

“While we obviously can’t guarantee future returns, our historic record is quite compelling certainly given the mediocre results that almost all organizations are reporting,” he said.

Some highlights of its PE portfolio: Blackstone’s Tactical Opportunities platform disclosed $13.2 billion of committed capital plus $2 billion for a Tactical Opportunities co-investment pool. Its Core Private Equity fund drew in $257 million during the quarter.

In the real estate unit, Blackstone booked inflows of $3.2 billion in Q3, including a closing for its fifth European opportunistic fund.

In its credit platform, Blackstone said it held additional closings of $3.2 billion for GSO Capital Opportunities Fund III, now its largest fundraise for a direct-lending drawdown fund.

The firm also raised $509 million for the new European CLO and $907 million in separately managed accounts and commingled funds, primarily in leveraged-loan strategies.

Outside of fundraising, Blackstone successfully tapped the European bond market for a $654 million issuance of 10-year notes with a 1 percent coupon. The firm said the deal priced within a couple of basis points off an all-time low in the market.

The deal marked the firm’s second offering in Europe, with plans to use the capital to hedge its operations there and provide it with additional buying power.

Among the firm’s quarterly metrics, third-quarter economic net income was about $708 million compared with an economic net loss of $389 million in the year-earlier period.

The firm said dry powder rose 20 percent to $102 billion and total assets under management increased 8 percent to $361 billion.

Action Item: Blackstone’s Q3 earnings: www.blackstone.com/media/press-releases

The ticker and trading information for Blackstone are displayed at the post where the stock is traded on the floor of the New York Stock Exchange, on April 4, 2016. Photo courtesy Reuters/Brendan McDermid