Hamilton Lane negotiates hurdle rate with Blackstone Tactical Opportunities

Hamilton Lane negotiated with Blackstone Group to add a preferred return and “improved management fee structure” on a planned commitment to the firm’s Tactical Opportunities platform, a memo prepared for Teachers’ Retirement System of Louisiana shows.

At its meeting last week, Louisiana Teachers’ committed up to $125 million to the platform, Deputy CIO Maurice Coleman said in an email. The system previously committed up to $125 million to Fund II in 2015.

As with Funds I and II, Blackstone is raising Tactical Opportunities III through a commingled fund and various separately managed accounts. The firm plans to raise $3.5 billion through a traditional commingled fund with another $3 billion of commitments coming through separate accounts, the Hamilton Lane report says.

In its Q3 earnings call, Senior Managing Director and CFO Michael Chae said the firm had already raised $2 billion and expected to raise at least $7 billion for the strategy.

Hamilton Lane, whose clients include Public Employee Retirement System of Idaho and Pennsylvania Public School Employees’ Retirement System, expects the new terms to reduce the spread between gross and net returns and “back-load” the incentive fee structure, according to the report.

The first and second Tactical Opportunities separate accounts varied their management fees, carried interest and hurdle rates with each individual investment, New Jersey Division of Investment documents say.

The specifics of Hamilton Lane’s newly agreed-upon terms could not be determined. The commingled fund does not have a hurdle rate, a source with knowledge of the vehicle said.

Unlike most private funds, which typically stick with one strategy or investment style, Blackstone’s Tactical Opportunities platform has a wide mandate to invest across a broad range of assets, geographies and investment strategies.

That flexibility is viewed as an asset by several major LPs, including Hamilton Lane, which wrote Blackstone’s “highly flexible mandate enables it to capture market dislocations and unique investment opportunities that are not accessible to other strategies and investors.”

Hamilton Lane declined comment.

Tactical Opportunities I was marked as netting a 1.2x multiple and 7.7 percent internal rate of return as of June 30, according to Hamilton Lane. Its realized investments grossed 1.7x and a 38.4 percent IRR, while unrealized investments were marked as grossing 1.3x with a 9.5 percent IRR.

Reported returns for Tactical Opportunities funds vary depending on the LP, given its use of separate accounts. Blackstone’s third-quarter earnings report marks its Tactical Opportunities investments as netting an 11 percent IRR and 1.3x multiple on invested capital. Co-investments made through the platform were netting a 16 pct IRR and 1.3x multiple.

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An aerial view of the New Orleans skyline on Aug. 17, 2017. Photo courtesy Reuters/Jonathan Bachman