The Blackstone Group has wrapped up fundraising for its Tactical Opportunities fund at between $5 billion and $5.5 billion, president Tony James announced during an earnings call on Thursday.
Blackstone collected about $1.5 billion in new commitments for Tactical Opportunities, which primarily includes the firm’s separately managed accounts, during the fourth quarter of 2013. The fund includes Blackstone’s separate accounts it manages on behalf of The New Jersey Division of Investment, the California Public Employees’ Retirement System and the Oregon State Treasury.
“Tactical opportunities is for me the most interesting and exciting thing we’ve done in a long time,” James said, adding that the firm has invested nearly a third of this capital already. “At the pace we’re going, we’ll be back in the market probably in a little over a year.”
Blackstone launched its tactical opportunities strategy in 2011 following the formation of a separate account with the New Jersey state pension system, which invested $750 million. A year later Blackstone added $500 million to the fund from CalPERS, and last June the Oregon State Treasury committed $250 million through a separate account.
Blackstone also said today that it held a first close for its Strategic Partners secondary funds of funds on $688 million during the fourth quarter. That fund is reportedly targeting between $3.5 billion and $4 billion.
Blackstone enjoyed a strong performance during the fourth quarter, with total assets under management rising to a record high of $266 billion, a 26 percent increase year-on-year.
Blackstone Capital Partners VI, which closed on $16.27 billion in 2012, appreciated 20.5 percent during 2013. At the end of Q4, it was being held at a 2.8x multiple and a 37 percent net IRR, according to the firm. The firm’s Fund V appreciated 34.5 percent last year; it is now held at a multiple of 1.5x.
Blackstone’s overall carrying value of portfolio assets appreciated 11.5 percent during the fourth quarter, and 28.5 percent for the year.
In private equity, assets under management grew to $65.7 billion, up 29 percent year on year. Blackstone generated $3.5 billion of private equity realisations during the fourth quarter and $9.6 billion for the year.
Recent exits via initial public offerings include UK-based leisure group Merlin and Hilton Hotels, which together created a combined $5.4 billion of public market proceeds for Blackstone’s private equity investors.
“I personally believe that [the IPO window] will stay open for the foreseeable future; let’s say another year,” James said. “Do I expect the market to be up 30 percent again this year? No I don’t. But I would expect the S&P to be up, and as long as it stays solid, it will be a good market for IPOs.”
Blackstone invested or committed $3.4 billion of private equity capital during the fourth quarter and $5 billion for the year, though James said high prices for assets throughout 2013 created a challenging investment environment.
“The combination of robust credit, a high equity market and the return of some strategics means there’s a lot of demand for companies; and the supply of companies for sale is not all that high, so that combination has pushed prices up,” James said. “It is frustrating for our guys to keep going after things and keep getting outbid.”
While Blackstone expects high prices to continue into 2014, investment opportunities could increase this year, according to James.
“We’re seeing more interest from strategics in making investments, so I think there will be more strategic acquisitions,” he said. “That can be bad if we’re going up against a strategic, but it’s also good in a way – because usually when there’s a lot of strategic activity, somehow it spawns spinoffs and other things being sold and rationalised. The private equity volume usually goes up as the strategic volume goes up.”
For the full year, Blackstone’s economic net income from private equity – a measure that includes both realised and unrealised investments – stood at $715 million, up 74 percent year on year.
The group’s overall net income was $1.5 billion in the fourth quarter, and $3.5 billion for the full year.
James said the firm’s overall outlook for 2014 was much improved from 12 months ago, when events such as sequestration and the threat of a government shutdown brought economic uncertainty and a “fiscal drag” on the economy.
“The US economy is definitely picking up strength,” James said. “It has wanted to grow for a while, but at this point it doesn’t have the headwinds that we had last year.”
Blackstone's shares were trading at $32.33 as of mid-day Thursday, up 85.6 percent from a year ago.