Sign of Things to Come: Blackstone Cuts Fund Target

The Blackstone Group has cut the target size of its new mega-buyout fund, and also has lowered its table minimum. I don’t yet have the revised target, except to say it’s higher than $10 billion and lower than Blackstone’s original $20 billion cover. The minimum commitment has dropped to $10 million.

All of this, of course, reflects that today’s PE fundraising market is slower than Mike Lowell. You’ve got the denominator effect, macro market terror and a waning 2008 calendar (Q4 allocations are always tough). But Blackstone also has the added challenge of being a mega-buyout fund in a market where many are questioning the mid-term viability of leveraged buyouts and the inflated valuations of 2006-2007 deals.

Blackstone has no intent of slowing down its fund-raising efforts, and firmly believes it will hit its new target (albeit over a longer time horizon). Part of me wonders, however, if the firm should slash its target down to $10 billion and then make a public announcement about how the LBO market no longer justifies a $15 billion to $20 billion fund.

Sure it would partially be a spin job to deflect from fund-raising difficulties, but it also could have a positive impact on the PE market at large. For example, KKR might not feel the need to engage in a fund-raising arms race next year, while overcapitalized firms like TPG would consider handing back some uncommitted dollars. All of this could have the cumulative effect of making LPs feel that someone is listening to them, which can only help when it’s time to raise the next fund. After all, it was those warm feelings – prompted by fund cuts in 2002 and 2003 — that helped lots of undeserving VC shops raise new capital…