Blackstone is nearing the completion of fundraising for its flagship buyout fund, concluding a prolonged campaign that extended beyond initial timelines and fell short of its original capital-raising ambitions, according to a report by Bloomberg citing sources familiar with the matter.
It is set to conclude fundraising for its flagship buyout fund by the end of March, securing just over $21bn.
The firm began fundraising in 2022 just as the Federal Reserve initiated a series of interest rate hikes to curb inflation, creating a more challenging capital-raising environment. Competition for institutional capital intensified, while liquidity constraints among investors added further complexity. Initially targeting a first-half 2023 close, Blackstone extended the process multiple times, ultimately keeping the fund open longer than anticipated to accommodate late commitments.
Expectations for the fund’s size also evolved. Initial reports in 2021 suggested a potential $30bn target, which was later revised to approximately $25bn – aligning with its predecessor fund. By early 2024, Blackstone set a revised minimum target of $20bn, ultimately surpassing this threshold but still trailing initial projections.
Similar funds that have closed in the past year have been raised in nearly half the time.
Private equity fundraising has faced headwinds, with high borrowing costs dampening institutional investors’ appetite for leveraged buyouts. According to a February report by McKinsey & Co, industry fundraising declined for a third consecutive year in 2024.
Looking ahead, Blackstone’s leadership – led by CEO Steve Schwarzman and President Jon Gray – faces the challenge of demonstrating that large-scale buyouts can continue to generate competitive returns in an environment characterised by elevated interest rates and geopolitical uncertainties. Private equity remains Blackstone’s second-largest division by assets under management, following its credit and insurance business.
Recent leadership changes have also reshaped the firm’s buyout division. Joe Baratta transitioned from day-to-day management of the flagship vehicle to overseeing the broader private equity platform, paving the way for Martin Brand to assume leadership of the latest fund.
The broader private equity industry has been grappling with slower capital recycling, limiting institutional investors’ ability to reinvest in new funds. This has led investors to adopt a more selective approach, scrutinising fund performance and differentiating returns driven by skill from those stemming from financial structuring or market conditions.
Performance data underscores these challenges. Blackstone’s 2020 buyout fund ranked in the bottom quartile among peers based on internal rate of return, according to MSCI data as of September 2024. The firm’s 2016 vintage fund placed in the third quartile, with both funds ranking in the second quartile by an alternative measure of returns.
As fundraising progressed, investor negotiations on terms and fees became more rigorous. In response to LP concerns, Blackstone executives indicated that the firm does not anticipate executing deals in patient-facing healthcare businesses in the US. This follows broader scrutiny of private equity’s role in the sector, particularly regarding the balance between financial performance and patient care.
Blackstone has also adjusted its approach to deal allocation across its private equity vehicles. While previous iterations of its flagship buyout fund co-invested in every transaction undertaken by its Asia and energy funds, the latest vehicle will only participate in select large-scale deals from these strategies. This shift aims to create clearer delineations between the risk-return profiles of different funds.
The firm is targeting over $10bn for its next Asia-focused fund, while its most recent energy fund closed at $5.6bn, surpassing its predecessor. In aggregate, Blackstone’s three primary private equity strategies are expected to exceed the capital raised in their previous iterations.
In 2024, the firm deployed its latest flagship buyout fund’s first investments, acquiring Tropical Smoothie Cafe and taking a stake in Jersey Mike’s, signalling its continued appetite for consumer-focused deals.
