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This Day in Buyout History

This day in buyout history: Blackstone closes its biggest fund ever—for now

A dozen years ago today, Blackstone closed its largest buyout fund ever. But the vehicle might not hold that title for much longer.

Blackstone is currently raising its eighth flagship private equity fund, a monstrous pool of capital that’s already collected more than $22 billion in commitments and could ultimately total $25 billion, according to reports. When the vehicle closes, it might be the largest in the history of the private equity industry—and it will almost certainly be the biggest fund Blackstone has ever raised.

But for the moment, at least, a different vehicle holds that title. And it’s done so for exactly a dozen years, ever since August 8, 2007, the date the firm announced a final close for Blackstone Capital Partners V on $21.7 billion.

It was auspicious timing for multiple reasons. One was that the fund close came less than two months after Blackstone went public, raising more than $4.1 billion in a closely watched IPO that’s proved to be a transformative event in the firm’s history. Another was that it came shortly before the global economy began to turn, joining a wave of mega-funds that swept across the private equity industry in the months leading up to the financial crisis, including a $20 billion vehicle from Goldman Sachs.

And when you compare Blackstone’s fifth flagship effort with the vehicles that came before and after, it seems clear that the firm got at least a little caught up in the fundraising frenzy. It was a remarkable step-up in size of more than 3x from Blackstone Capital Partners IV, and both the firm’s fifth and sixth funds fell well short of that $21.7 billion figure. That’s contrary to the general industry trend of firms raising more cash for each successive flagship fund, particularly among private equity’s biggest players.

Here’s a fuller look at the history of Blackstone’s flagship funds:

But back to Blackstone Capital Partners V. While the vehicle didn’t officially close until August 2007, it had been an active player on the buyout scene for even longer; at the time of the close, about two-thirds of the fund’s available capital had already been deployed. And that cash went toward some of Blackstone’s biggest deals of the era.

That includes its $26 billion takeover of Hilton Hotels in July 2007, a wildly successful investment that eventually returned a reported $14 billion in profit to Blackstone. The firm also deployed the fund to conduct a $17.6 billion takeover of Freescale Semiconductor, a signature club deal of the pre-crisis PE scene that also included participation from The Carlyle Group, Permira and TPG Capital. In a similar move, Blackstone used capital from its fifth fund on a $10.9 billion acquisition of medical device specialist Biomet as part of an investor group that included Goldman Sachs, KKR and TPG.

Not many of the buyout funds that closed in the immediate run-up to the recession went on to produce sterling returns. But Blackstone Capital Partners V did better than most, logging an IRR that ranks in the second quartile of its industry benchmark, according to the PitchBook Platform.

For most of the past decade, that recession has been a quickly receding memory. Recent months and years, however, have also brought potentially troubling signs that echo events that preceded the 2008 crisis. Home sales are weakening. Complex securities that vanished in the aftermath of the recession are making a comeback. And in private equity, funds are getting huge again—huger than they’ve been at any point in the past dozen years.

This isn’t news to Blackstone. Just last month, the firm’s chief investment officer published a note sounding economic caution, writing that "[t]he market is looking over its own uncertain cliff right now.” But that isn’t stopping the firm from raising its massive new fund. If history repeats itself, Blackstone seems to betting it will once again be able to successfully navigate the market’s stormiest seas.

Featured image via siraanamwong/iStock/Getty Images Plus

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    Written by Kevin Dowd

    Kevin Dowd wrote The Weekend Pitch newsletter for PitchBook, covering startups, buyouts and the rest of the private market.

    A native of the Pacific Northwest, he’s an alumnus of the University of Washington with a degree in creative writing and journalism. He enjoys books and basketball and, most especially, books about basketball. He feels uncomfortable writing about himself in the third person.

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