Blackstone Group LP doesn't do anything in half measures.
The New York firm on Saturday said it plans to spend $100 billion on infrastructure, anchored by a $20 billion investment from Saudi Arabia's Public Investment Fund. It's aiming to raise another $20 billion from other investors, and will finance the rest with debt. The move sent Blackstone's stock more than 7 percent higher on Monday, with number crunchers calculating that the management and performance fees associated with such a gargantuan fund could bolster its shares by as much as $5 apiece over time.
The outsize nature of Blackstone's infrastructure foray puts it in a position to benefit from President Donald Trump's $1 trillion infrastructure plan -- which, like most of his pledges from tax and health-care reform to financial deregulation, is yet to be realized though will likely come together in some form. But for firms like Blackstone, fundraising is only one of the challenges and scale may not necessarily be an advantage.
Blackstone -- best known for its private equity, credit and real estate savvy -- hasn't named any key infrastructure investment executives yet, a move that logically should have come first. Even Apollo Global Management LLC, whose ambitions in the space are far less sizable, recently named former JPMorgan executive Joe Azelby into a newly created role of global head of real assets. And Carlyle Group LP, which itself is targeting a more modest $2.5 billion for a global infrastructure fund, has been building out its team.
As I've written, North American infrastructure investing isn't going to be easy for alternative asset management behemoths like Blackstone, in part because the industry has delivered fewer-than-expected opportunities. And already vying for these are so-called strategic buyers, pension funds with a track record of investing directly in the sector and established infrastructure specialists like Global Infrastructure Partners, whose $15.8 billion dollar war chest remains the industry's record until the Blackstone fund is finalized.
That's especially the case in so-called core infrastructure sectors such as transport, utilities and energy, where large opportunities have been relatively scarce. Because of this dynamic, the scale of Blackstone's infrastructure arm may not give it the same advantage it has in real estate, where it has long been a first port of call for sellers.
For context, in 2016, the largest U.S. transport transaction was a $2.1 billion public-private partnership involving the 22.5 miles of the Interstate 66 in Northern Virginia -- and although the winning consortium includes French asset manager Meridiam, it's helmed by Spain's Cintra, a toll road operator. And in the utilities space (where to be fair, there's been recent talk of Calpine Corp. and Dynegy Inc. getting acquired), last year's biggest deal involving a financial buyer was the $3.3 billion purchase of Engie SA's power plants by Energy Capital Partners LLC in a joint venture with Dynegy.
Trump's infrastructure plan will presumably jumpstart a number of projects, and requires hefty investment from the private sector to succeed. A flurry of deals could be born if the U.S. follows Australia's lead by providing federal incentives to states and municipalities which would encourage them to pursue much-needed infrastructure improvements. In practice, this could involve federal government grants worth 10 percent to 15 percent of total proceeds received from selling concessions or long-term leases on assets like toll roads, waterworks or airports. But unless that occurs, Blackstone may be best served channeling its efforts into construction of new or so-called greenfield assets, which fit with President Trump's job-creation agenda.
There's a chance some deals could face political scrutiny if Blackstone's fund is deemed to have a concentrated rather than diversified ownership base. In other words, even though Blackstone would be the face of any deal and the operator of the airport, port, or toll road (and its co-founder Stephen Schwarzman is chairman of a business council advising Trump), its infrastructure arm could encounter pressure to abort a deal if it's deemed to potentially compromise national security.
At the end of the day, Blackstone's ability to land such a huge commitment from PIF should provide shareholders with comfort that despite its size, new avenues for growth remain. And thanks to the open-ended "permanent" nature of its newly-created and immediately massive infrastructure arm, the firm has time on its side to prove that it can be successful swimming outside its existing lanes.
Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
A perfect example was its ability in 2015 to snap up a chunk of General Electric Co.'s real-estate assets including a $5.3 billion portfolio of office buildings and $8.8 billion in property loans.
That's arguably the case since Saudi Arabia's PIF is providing half of the $40 billion in targeted capital
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