Blackstone raises $4.5bn fund dedicated to energy

March 2015 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Private equity giant The Blackstone Group has exceeded its $4bn target in its quest to establish a fund dedicated to energy sector investments. The fund, which goes under the name Blackstone Energy Partners II, began the process of soliciting funds in 2014 and has now raised $4.2m of commitments – via 126 limited partners – according to its filing with the US securities regulator. The hard cap target is $4.5bn and the placement agents have been named as Morgan Stanley Smith Barney and Deutsche Bank Securities.

This second Blackstone energy fund is significantly larger than the first which closed in September 2012. That fund surpassed its $2bn target to close on $2.5bn. An investment firm which specialises in direct investments, fund of funds investments, infrastructure and real estate, Blackstone invests globally with focus on the Americas, Asia, Australia, Africa and Europe. The firm also invests in Latin America, emerging European markets, and India, as well as pursuing transactions throughout the world. Its investment size can range from a single limited partner interest of $250,000 to complex portfolios of more than $1bn.

Blackstone has previously announced that the fund will be used to make control and control-oriented investments in the energy and natural resources sector alongside its $16bn diversified global private equity fund, Blackstone Capital Partners VI. To raise the capital required to establish the fund, Blackstone’s credit investment arm, GSO Capital Partners, contacted a number of existing investors to quickly raise between $500m and $1bn to invest in traded debt securities in the energy sector. The fund will, in the main, look to buy the traded debt of energy firms rather than lend to them directly. It will aim to balance its portfolio by investing in lower-risk, lower-return debt securities.

Speaking in December 2014, Blackstone’s chief executive Stephen A. Schwarzman claimed that he was “particularly bullish” on energy. He said: “I think this is going to be a wonderful, wonderful opportunity for us. It’s going to be one of the best opportunities we’ve had in many, many years.”

The Blackstone/GSO fund is among several transactions currently being pursued by big private equity firms as they endeavour to find investment bargains among oil and gas companies, many of which have been strained by the fall in oil prices since June 2014. One of these, Apollo Global Management, is seeking to raise a new fund to buy the debt of troubled energy companies. The company disclosed in a regulatory filing that the fund would be used to invest in less liquid or illiquid credit products in energy businesses. One recent transaction which Apollo Global Management would be looking to emulate saw the private equity firm Warburg Pincus raise $4bn for its first fund dedicated to the energy sector.

In contrast to Apollo Global Management’s, the Blackstone/GSO fund will invest primarily in the liquid corporate energy credit markets, buying the traded debt of energy companies rather than lending to them directly. One strategy that the Blackstone/GSO fund will almost certainly utilise is to invest in companies, some private equity-owned, whose bonds are trading at distressed levels. This strategy could lead to Blackstone/GSO being in a position to take an equity stake through the restructuring of a company’s debt and benefit from any recovery in its valuation.

“It’s going to be a very quick market dislocation and it may be relatively short-lived,” said Andrea Kramer, a managing director at Hamilton Lane Advisors LLC, a global leader in private markets investing. “You have to have enough experience in this sector to time it effectively.”

The official closing of the Blackstone/GSO fund is expected in the first quarter of 2015.

Fraser Tennant