Blackstone Group isn’t satisfied with the steep fees it charges its clients. It also wants a cut of the steep fees that other buyout firms charge their clients.
The private-equity giant headed by billionaire Stephen Schwarzman has nearly doubled the targeted size of a fund that takes stakes in hedge funds, real estate companies and other buyout firms to $6 billion, The Post has learned.
In a twist, Blackstone isn’t investing with buyout shops in the same way that pension funds and other “limited partner” clients do. Instead, it’s investing as a full “general partner,” avoiding lengthy lockups of its cash while helping itself to a cut of their lucrative management fees in addition to their profits.
In the past, those fees have stretched as high as 20-percent of the gains on any investment, plus a 2-percent fee on top of that. While the general partners that run those funds lately have been forced to shrink those fees amid poor returns, they’re still eye-popping compared to what pension funds and other limited partner investors get.
It’s unclear which specific firms the new fund, which is being led by Blackstone’s asset management CEO John McCormick, is looking to buy into, but it’s looking to invest between $500 million and $1 billion per firm, and is hoping to get returns in the low- to mid-teens, one prospective investor said.
Increasing demand for Blackstone’s fund has led bankers to nearly double the original projected size of about $3.3 billion from last year, when it was first reported.
The demand has been driven by Blackstone’s pedigree on Wall Street, as well as how rare it is to buy into these private funds. In return for selling their valuable stakes, hedge funds and other PE companies get more cash that they are free to invest.
“Hedge funds want liquidity,” one person familiar with the fund told The Post.
Indeed, persistently sluggish performance and lower fees across the hedge fund industry could make it challenging to find enough funds to invest in, said David Tawil, President of Maglan Capital.
“These equity stakes these guys are buying are probably in niche funds that can afford to continue to charge 2 and 20 [percent], where there’s a particularly unique strategy,” Tawil said.
Blackstone’s fund will take on two of Wall Street’s giants who are already investing in the space: Dyal Capital, which is owned by Neuberger Berman, and has more than $15 billion under management; and Petershill Private Equity, a part of Goldman Sachs’ asset management arm, which has about $2.5 billion in assets.
The strategy lets bigger firms like Blackstone profit from smaller companies that they normally wouldn’t invest in, since the fees would be too small or it wouldn’t fit into Blackstone’s investment strategy.
It will also potentially give Blackstone information about a firm’s proprietary strategy.
“If you’re going to buy an equity stake in an asset manager, you’re gonna want to know the secret sauce,” Tawil said.
Paula Chirhar, a Blackstone spokeswoman, declined to comment.
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