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James: Blackstone to expand platform of longer-duration vehicles

  • Blackstone Core Private Equity raised $5 bln
  • Vehicle can buy and hold for longer periods
  • Fund has completed 2 deals, including Ascend in Q3

Blackstone Group is preparing its platforms for more longer-term investment vehicles in the vein of its $5 billion Blackstone Core Private Equity Partners, President and Chief Operating Officer Tony James said during a third-quarter-earnings call.

“We have a growing number of permanent-capital vehicles in each of our businesses, and you should anticipate that we’re going to evolve our business more and more toward those types of vehicles,” James said during the call with analysts.

According to James, long-duration and permanent-capital vehicles account for 15 percent of Blackstone’s fee-earning assets under management, which finished Q3 at $285.7 billion.

Unlike its typical buyout funds, which have an investment life of 10 to 12 years, Blackstone Core Private Equity Partners acquires lower-risk assets for longer periods. The vehicle’s strategy is somewhat similar to Warren Buffett’s Berkshire Hathaway holding company.

“Traditional draw-down vehicles are a bit of a treadmill,” he said. “That seems kind of silly to us, in a way. If you have a lot of potential in an asset, why sell it?”

In the quarter, Blackstone used Core Private Equity to acquire Ascend Learning with Canada Pension Plan Investment Board. The deal valued Ascend, which provides educational content, software and analytics, at more than $2 billion with debt.

The firm entered its first investment with the vehicle in January, when it acquired music-rights business SESAC Holdings from Rizvi Traverse Management. Terms weren’t disclosed.

“You can be a lot richer if you hold an asset for 10 years, earning 12 percent, than you can holding four years, earning 25 percent,” James said, adding that it also functions as a better way to serve some of Blackstone’s long-term investors.

LPs in Blackstone Core Private Equity Fund include New York State Common Retirement Fund and Korea’s National Pension Service.

Blackstone’s PE segment finished Q3 with a little less than $100 billion of assets under management. The carrying value of the funds held through the PE platform increased 3.3 percent during the quarter.

Blackstone Group has $387.4 billion across all its platforms.

Action Item: For more on Blackstone Group, visit www.blackstone.com

Tony James, president of Blackstone Group, speaks during the Reuters Investment Banking Summit in New York on Nov. 14, 2006. Photo courtesy Reuters/Keith Bedford