So many deals, so little capital. Such is the condition of The Blackstone Group, which is rapidly running out of money, despite having raised among the largest private equity and real estate vehicles in history.
On the private equity side, the firm has already committed to invest roughly half of the $15.6 billion (€11.8 billion) in equity it raised this past summer for its fifth fund, according to a source at the firm. This is the result of being part of many of the largest club deals, including the announced $17.6 billion acquisition of VNU and the $5.9 billion buyout of Michaels Stores.
Already, Blackstone is speaking with investors about upsizing its current fund to roughly $20 billion, arguing that it needs to keep pace with the deal flow and that a larger fund means fewer club deals.
The need for additional capital is even more acute for Blackstone's real estate group, which just announced what amounts to the largest private equity deal of all time-the $36 billion take-private of Sam Zell's Equity Office Properties REIT. That deal will require an equity cheque of $3.2 billion, and Blackstone's most recent real estate fund, the $5.25 billion Blackstone Real Estate Partners V, won't cover it.
A Blackstone source declined to give details on how the firm will source the additional capital required for the Equity Office and future deals, but said the firm was confident the funding would be delivered.
Blackstone real estate group, led by Chad Pike and Jonathan Gray, is already speaking to limited partners about a next fund. A size has yet to be determined. But it would be safe to say that Blackstone intends to keep up with its private equity real estate rivals.
Morgan Stanley's powerful real estate group is reportedly in the market seeking a new vehicle with a target of as much as $8 billion, which would make it one of the largest private equity vehicles in the world in addition to being by far the largest real estate fund. With Blackstone's stellar real estate perfomance, if LPs are in the mood for supersized real estate funds, Pike, Gray and company will no doubt be among the chosen few beneficiaries.
TPG EXCEEDS $15BN IN FINAL CLOSE
Texas Pacific Group has reached a final close on more than €15 billion ($11.7 billion) for its fifth private equity fund, according to a source close to the firm. News of the close has been reported several times over the past three months. The source said Texas Pacific's partners had been awaiting “administrative details” related to some of the fund's LPs before decaring the fund closed. Texas Pacific's fourth fund, closed in 2003, raised $5.8 billion. According to the website of the California Public Employees' Retirement System, which committed to Fund IV, that vehicle has generated an internal rate of return of 33.7 percent.
KKR PROVES “CORE PARTNER” TO CALPERS
According to a report by its investment committee, the California Public Employee Retirement System (CalPERS) committed $500 million to KKR's $15.5 billion mega-fund. The pension fund already has three of the firm's funds in its portfolio with the first, a 2001 European fund, earning a 29.2 percent return on a $75 million investment. In explaining the commitment, CalPERS reference its recent strategic review, which called for reducing the number of relationships it had with private equity mangers to a few core partners. The LP credited KKR's strong reputation, explaining that it provides deal flow through referrals, and may improve the marketability for sellers looking for top class financial sponsors.
SOFINNOVA CLOSES $375M FUND
The San Francisco-based firm has raised its seventh fund, which will be used for pharmaceutical and IT investments in the US and in Europe. The fund surpassed its target of $300 million, the firm said in a statement. Sofinnova will use two-thirds of the fund for pharmaceutical products and the remaining third for IT investments. Approximately 90 percent of the 25 companies to be funded will be based in the US and the remaining 10 percent will be in Europe. Founded in Paris in 1972, Sofinnova became the first European venture capital firm to launch a US operation in 1974. In 1997, the firm split into two independent management teams, with Sofinnova Partners in Paris and Soffinnova Ventures in San Francisco. The two firms share deal flow, expertise and information.
ARSENAL CAPITAL SECURES $500M FOR SECOND FUND
New York's Arsenal Capital exceeded its initial target of $400 million for its second fund. Roughly 65 percent of the fund was raised from domestic LPs with the remaining 35 percent from international sources. Returning investors include Adams Street Partners, National Equity Partners and the Oklahoma Police Pension and Retirement System, while Grove Street Advisors, ATP Private Equity Partners and Swiss Re made first time commitments to Arsenal. The firm spun out from Thomas H. Lee and closed its debut fund at $300 million in 2003.
SILVER LAKE ABSORBS SHAH CAPITALs
Silver Lake Partners, the Silicon Valley private equity firm noted for its technology company buyout programme, has brought on board Santa Clara, California private equity firm Shah Capital Partners to manage an affiliated middle market tech buyout fund. Silver Lake is already speaking to investors about the fund, which reportedly has a target of $750 million (€588 million), that will pursue technology-industry buyouts, but of a far smaller size than what Silver Lake's main buyout strategy pursues. Silver Lake is preparing to begin collecting capital commitments on a third major buyout fund that has a stated target of $7.5 billion, although some reports have suggested the firm may ultimately raise as much as $10 billion or more.
WARBURG CLOSES RE FUND ON $1.2BN
Warburg Pincus has closed its first real estate opportunity fund on $1.2 billion (€940 million). Although this is its first dedicated vehicle, the private equity firm has invested more than $1 billion in the asset class over the past 20 years. “We've moved to establish a separate fund for our global real estate investment activities at a time when the firm has seen its proprietary real estate deal flow increase substantially around the world,” said Warburg's co-president Joseph Landy in a statement. Michael Profenius, a partner in the firm's real estate practice, said the dedicated fund provides Warburg with a “strong, dedicated capital base” that will enable it to take advantage of real estate investment opportunities on a global scale.
NOVAK BIDDLE RAISES FIFTH FUND
Novak Biddle Venture Partners, an early stage venture capital firm focused on technology investments from government labs and universities in the Washington, DC metro area, has closed a $227 million (€178.5 million) fund, Novak Biddle said in a statement. The fund is the Bethesda, Maryland-based firm's fifth, Novak Biddle focuses on the education, homeland security and software sectors, the statement said. The firm has begun to invest in other geographic areas, including Israel, Pennsylvania, New York and Washington State. The firm closed its fourth fund, which raised $150 million, in May of 2004.
REAL ESTATE FUNDS NEAR RECORD $55BN
Private equity real estate funds will raise approximately $55 billion (?42 billion) in 2006, far surpassing the $37 billion raised in 2005, according to figures compiled by Private Equity Real Estate (PERE). The record amount of equity, along with favorable debt financing, is fueling much of the recent activity in the US public real estate markets, including the recent $36 billion acquisition of Equity Office Properties Trust by Blackstone Real Estate Advisors. Funds currently in the market or coming to market within the next 12 months are targeting more than $60 billion in capital, according to PERE, suggesting that 2007 could rival 2006 in terms of fundraising and deal activity.
ENERGY CAPITAL CLOSES ON $2.25 BILLION DEBUT FUND
Founded by three ex-Goldman Sachs bankers, Energy Capital Partners has reached an ambitious target for its first vehicle. The Short Hills, NJ-based private equity team is devoted to North American energy infrastructure plays, including power generation, renewables, electric transmission and midstream gas sectors. The fund was raised from a wide variety of limited partners, with 25 percent of commitments coming from off-shore investors.