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- While the coronavirus pandemic has made it hard for first-time funds to raise money from investors, The Blackstone Group has been wooing institutions remotely.
- CEO Stephen Schwarzman said on an earnings call this week that investors are holding Zoom due diligence calls and forging on with capital commitments.
- “I just got an email, I guess, it was two days ago that we just got $500 million from an individual account for one of our funds, which to me at least is a reaffirmation that life goes on,” he said.
- That’s in contrast to smaller funds that are having a more difficult time raising capital, according to attorneys and placement agents.
- The value of Blackstone’s private-equity funds declined by 21.6% in the first quarter, affected most by plummeting oil prices in the energy sector.
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For private-equity firms operating during the coronavirus pandemic, it can pay to be big.
Attorneys and placement agents have told Business Insider that first-time funds are having a hard time raising money, while the biggest firms are raising huge distressed-debt funds and existing investors are re-upping capital commitments to them in other asset classes.
The established network big firms already have intact also allows them to carry out due diligence meetings without meeting in-person, as was evident on Blackstone’s earnings call this week.
“We had one fund that was supposed to be having a big due-diligence meeting with, I think it was over 130 or 150 different attendees, and it was just done on Zoom,” CEO Stephen Schwarzman told analysts.
“And much like the rest of the way we’re all working, everybody was pretty adjusted and cool about that.”
Schwarzman said that that’s one of the advantages of “being in business for like 35 years.”
“Everybody on our side of the table knows everybody well on the other side of the table at virtually every institution in the world. We talk to them with great frequency and we’re not always seeing them,” he said.
Schwarzman, who has been one of President Donald Trump’s close financial advisers, has run Blackstone since founding it in 1985 and grown its assets under management to more than half a trillion, owning businesses from real estate, to logistics, outdoor parks and online platforms.
Last year, it acquired Merlin Entertainment, the large amusement park operator that runs Legoland, along with a controlling stake in Great Wolf Lodge, the hotel resort chain.
After its outdoor, hospitality, energy and casino investments took a hit because of the coronavirus, the economic toll started to show in its first-quarter earnings, when the firm said that the value of its private equity funds fell by 21.6%.
Of all its assets, the energy sector was most responsible for the decline, said Michael Chae, Blackstone’s chief financial officer on the earnings call.
“Excluding these holdings, the corporate PE funds declined 11%,” he said.
Despite the sharp drop, though, Blackstone’s fundraising efforts have continued.
“Now, with this whole distance communication, it’s quite easy to get somebody on the phone anywhere in the world and talk to them and see them,” said Schwarzman. “That bond of trust that you have that gets developed over decades really becomes exceptionally useful in a situation like this.”
In other areas of the private-equity industry — namely, firms that are in the process of raising their first funds — due diligence meetings are not quite as easy to convene.
“Fundraising is slowing down due to the friction and uncertainty,” Peter Martenson, a placement agent, told Business Insider via email.
Martenson said some investors have been doing conference calls, including Zoom due diligence meetings, and he’s seen investors commit capital to PE firms without having physically met, but that the majority are waiting for travel and meetings to resume so they can physically meet private-equity firms to review their investments, either in meetings or on-site.
Blackstone execs say it’s a different picture at their firm.
Earlier in the firm’s first-quarter earnings call, Blackstone President Jon Gray said that the firm raised $27 billion in the first quarter, $12 billion of which was raised in March during the sharp economic decline.
“Probably the best example was our core private-equity business,” he said. “We were raising our second fund and we raised all $5 billion in the last two weeks of March. So, even given the logistical challenges, we were able to get that done.”
To be sure, he did say that the travel restrictions was limiting fundraising somewhat. Retail investors, for instance, are slowing down commitments.
“That being said, a number of our customers are sort of still open for business and that’s the reason why I still think we’ll have a healthy year for fundraising, but not the pace we were expecting certainly six weeks ago,” Gray noted.
Schwarzman pointed to built-in relationships as Blackstone’s advantage.
“I just got an email, I guess, it was two days ago that we just got $500 million from an individual account for one of our funds, which to me at least is a reaffirmation that life goes on.”
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