• Fund said to mimic Buffett’s long-term, buy-and-hold strategy
  • Incentive fee will be half main fund’s fees at 10 percent

Blackstone Group LP, the world’s largest private equity manager, expects this month to finish raising the biggest buyout pool yet designed to mimic the long-term, buy-and-hold strategy of Warren Buffett.

New York-based Blackstone expects to garner about $5 billion for its first “core” private equity fund, which will invest in individual companies for more than twice the typical three-to-five-year holding period, according to a person with knowledge of the matter. Blackstone has locked up much of the money in recent weeks, said the person, who asked not to be identified because the information is private.

The pool will back companies that are larger, more established and ostensibly less risky than most buyout targets.

“It was offered very selectively to sophisticated investors,” Blackstone Chief Executive Officer Steve Schwarzman said in a call with analysts in April. “These are assets we anticipate holding for a long, long time.”

Longer Holds

Blackstone Core Equity Partners LP is the third big vehicle raised this year designed to extend private equity’s clock. Carlyle Group LP said in a May regulatory filing it had raised $3.3 billion for a fund that will take minority and majority stakes in companies in the U.S. and abroad. CVC Capital Partners, Europe’s largest buyout sponsor, wrapped up raising $4.4 billion for a long-dated pool early in 2016.

Buyout industry executives including KKR & Co.’s Henry Kravis have said they envy Buffett’s freedom to hold or exit investments at will, rather than having to recycle money every few years. Kravis has dubbed Berkshire Hathaway Inc., Buffett’s holding company, the “perfect private equity model,” with its ability to self-fund company buyouts through its insurance operations, so it can hold them indefinitely.

The Blackstone vehicle will have a 20-year lifespan, instead of the typical 10 years, shooting for an annualized net return of 15 percent, less than what Blackstone’s $18 billion flagship buyout fund targets, the person said.

The firm will deploy the $5 billion in four or five deals, endeavor to return all the initial investment in each company within eight years, and exit investments entirely after 10 to 12 years, the person said. Investors will pay an incentive fee of 10 percent of deal profits, half the percentage for investors in Blackstone’s main fund.

Blackstone spokeswoman Christine Anderson declined to comment on the fund.

Real Estate

In addition to private equity, Blackstone has devised a long-term vehicle for real estate.

Called “core plus,” the strategy targets high-quality, well-located properties that typically carry less risk than the firm’s traditional focus on of debt-laden, often distressed properties. Blackstone raised $12 billion for the platform in the last two years, Schwarzman said in April.

“I have extremely ambitious objectives for this area,” he said, predicting the firm’s core property holdings could reach $100 billion in 10 years.

After buying Manhattan’s Stuyvesant Town-Peter Cooper Village apartment complex in 2015 for about $5.3 billion, and making other property deals in the city, Blackstone became New York’s No. 1 real estate buyer.

Blackstone, started in 1985 by Schwarzman and Pete Peterson, oversaw $344 billion in private equity, real estate, credit and hedge fund assets as of March 31.

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