Let Blackstone handle your retirement

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Private equity is on a never-ending hunt for more dollars to manage, with nearly as much focus directed to fundraising as investing. Historically, that meant time spent wooing large allocators like pension funds, sovereign wealth funds, and endowments — not anymore.

Last week, Blackstone announced it was resuming its plan to launch a corporate buyout fund comprised entirely of retail money, raising capital from high-net-worth individuals.

The fund, Blackstone Private Equity Strategies, or BXPE, will begin taking subscriptions later this year.

Wealth Management Keeps the Lights On

Blackstone President Jonathan Gray sees his burgeoning wealth management business as key to the firm’s continued dominance. BXPE is just the latest launch from the $240 billion AUM unit, which includes sister funds BREIT (real estate) and BCRED (private credit).

Making his case, Gray cites Morgan Stanley research:

The more money Blackstone manages, the more fees it collects. In an increasingly competitive institutional fundraising environment, retail is the logical choice to ensure continued topline growth. Already, retail-oriented funds contributed nearly half of Blackstone’s second-quarter fee-related performance revenue.

Often structured as perpetual funds, without a timeline to return capital, the retail vehicles provide steadily expanding earnings power and a highly predictable source of fees — exactly what shareholders want to see.

Managing the Retail Crew

Retail investors pouring money into Blackstone-managed funds are likely more sophisticated than your typical day trader. Even so, it’s still a markedly different LP profile than Blackstone is used to managing.

All that to say, Blackstone’s ascent has not come without growing pains.

Late last year, the firm faced a mini-crisis at BREIT, its flagship $70 billion property fund. A handful of redemptions from Asian investors, initially a minor issue blamed on tighter monetary policy, spiraled into a barrage of redemption requests after other investors got spooked.

Blackstone was forced to halt withdrawals in a last-ditch effort to avoid a fire sale of illiquid real estate assets that would have caused further contagion.

A public relations blitz from Blackstone leadership, including chiefs Steve Schwarzman and Gray, eventually put an end to the panic, though not before Blackstone's stock dropped nearly 20% (and the firm delayed the launch of BXPE).

So far, retail has proven a fickle investor base that’s prone to making emotionally driven decisions at the click of a button — very different than institutional LPs accustomed to fluctuating economic conditions and market sentiment.

Longer-term, retail reception of private equity’s notoriously pie-in-the-sky illiquid asset valuations remains a hurdle, particularly in scenarios where final portfolio company sales are substantially different than previous fund marks.

Blackstone’s Right-to-Win

While Schwarzman and Gray may not have envisioned themselves chasing after wealth managers, they do point to Blackstone’s global financial advisor network as a key differentiator.

The firm has built long-term partnerships with advisors and their underlying clients, working to lock up what they view as the next big frontier. The strategy has placed Blackstone meaningfully ahead of peers, though other asset managers have begun to make retail inroads (notably Starwood, Brookfield, and KKR).

Maintaining the edge takes a different set of skills than Blackstone’s historical strengths. The latest firm initiative? Roll-out of a recently launched brand awareness campaign, complete with the new tagline “Build with Blackstone.” It seems suburban moms and dads are now on the same footing as CalPERS when it comes to critical targets for brand recognition.

The New Blackstone: Returns At Scale

While BXPE is set to plug into Blackstone’s existing LBO machine, the strategy may not be core to the business for much longer.

This summer, Blackstone became the first private equity manager to hit $1 trillion of assets under management — a long way from its 1985 launch after founders Schwarzman and Pete Peterson managed to cobble together $400,000 of start-up capital.

Deploying today’s ballooned AUM is a daunting task and requires a very different approach than Blackstone’s corporate buyout bread and butter. To support growth, Gray has made a conscious decision to target larger markets, at the expense of lower returns.

While it may not sound as sexy to the average private equity investment professional, it does keep the management fees growing at a rapid clip (which is, again, very sexy to Blackstone shareholders).

Gray’s ultimate vision is a broadly diversified firm whose edge comes not from 30% buyout returns but from a core expertise in asset “distribution.”

What’s Up Next?

Blackstone is set to join the S&P 500 on September 18th, the first alternative asset manager to make the cut. Given shareholder tendency to quickly forget prior accomplishments, the firm has now set its sights on hauling in the next $1 trillion of assets.

The rest of the private equity world is following suit. Going forward, don’t be surprised if you see retail intermediaries popping up, providing access to (HNW) mom-and-pop investors for managers without the reach and infrastructure of Blackstone. Think a placement agent, like PJT’s Park Hill unit, that woos financial advisors instead of pension funds.

Whatever the final logistics, expect private equity to continue their quest to secure an ever-bigger piece of the pie.

1. Rite Aid, one of the U.S.’ largest pharmacy chains, preps for Chapter 11.

• Rite Aid, with more than $24 billion in annual revenue, has hired advisors (Guggenheim, A&M, Kirkland & Ellis) ahead of a possible bankruptcy filing.

• The Company is grappling with a $3 billion debt load and an annual loss of nearly $950 million, but the bigger issue is a raft of state and federal opioid lawsuits. The Justice Department alleges Rite Aid knowingly filled hundreds of thousands of unlawful prescriptions for controlled substances, stopping only after three whistleblowers prompted a federal investigation.

• Rite Aid hasn’t yet agreed on a settlement with opioid plaintiffs and plans to treat those liabilities as general unsecured claims. Bankruptcy may allow easier resolution, consolidating claims under a single forum that would mirror bankruptcy settlements reached in other opioid-induced filings (all of which allocated more to opioid claimants than other unsecured parties).

• A filing would make Rite Aid the fourth significant opioid-related bankruptcy, joining manufacturers Purdue Pharma, Mallinckrodt, and Endo International. However, not much settlement money has made its way to victims, with government objections prompting further litigation over previously approved bankruptcy plans.

2. Get ready for yet another Twinkies transaction.

• Hostess Brands (Nasdaq: TWNK), maker of Twinkies, Ho-Hos, and Ding Dongs, has hired Morgan Stanley to evaluate a potential sale following takeover interest from General Mills, PepsiCo, Mondelez, and Hershey.

• Hostess has kept itself busy in recent years — the business filed for bankruptcy in both 2004 and 2012, after which it was acquired by Apollo for $410 million. That led to a 2016 public listing via SPAC (before that was even cool).

• It’s still early days and no numbers have been floated, but any deal would come at a premium to Hostess’ $3.5 billion market cap prior to this news (now trading at nearly $3.8 billion).

• A deal could make a lot of sense for a larger strategic. Hostess has no international presence, providing immediate upside should an acquirer hook them up to existing global distribution. Plus, Hostess boasts industry-leading baking capacity and capabilities.

3. Danaher secures an attractive Abcam acquisition.

• Danaher (NYSE: DHR), a diversified life sciences business, agreed to buy Abcam (Nasdaq: ABCM), a UK-based provider of assays and reagents to life sciences, for $5.7 billion in cash, including debt.

• Danaher’s $24 per share offer comes in at a 50% premium to Abcam’s pre-speculation price — while short of analyst (and shareholder) expectations, the offer was apparently rich enough to beat out a competitive field of “more than 20 potential strategic acquirers,” per Abcam. The deal shakes out at roughly 23.0x management’s 2024 EBITDA, excluding SBC.

• This comes just a few months after Danaher was strongly linked with turbulent CDMO Catalent, though ultimately decided to pull out of a deal due to Catalent’s executive turnover and regulatory failings at key facilities.

• Analysts view this as a solid pick-up for Danaher — it’s a reasonably-priced entrance into a high-growth proteomics reagents supply market, an area in which it’s been falling short of competitors Thermo Fisher and Merck Millipore. Danaher’s existing life sciences clients should provide easy revenue synergies, plus there are nearly $100 million of high-probability cost synergies, per Danaher management.

The rest of the deal sheet…

• Sycamore Partners announced the launch of Knitwell Group, a new holding company made up of apparel brands Ann Taylor, Loft, and Talbots. The move places Knitwell as one of the largest specialty clothiers in the U.S.

• TPG remains in discussions with French billionaire François-Henri Pinault over the potential sale of its majority stake in Hollywood talent agency Creative Artists Agency (CAA).

• SentinelOne (NYSE: S), a cybersecurity company with a $5 billion market cap, turned down an approach from privately-held Wiz, a cybersecurity startup last valued at $10.3 billion. This move follows speculation over SentinelOne’s future, though management denied the business was for sale.

• Procare Solutions, a child-care management software provider backed by TA Associates and Warburg Pincus, has hired William Blair to launch a sale process that could fetch nearly $2 billion.

• Veritas Capital offered to buy BlackBerry (NYSE: BB), trading at a $3.3 billion market cap.

• After a failed $100 billion EY offer, TPG settled for an acquisition of Crowe’s healthcare consulting unit. Crowe Healthcare will become an independent entity led by its existing management team, with a rebrand to Kodiak Solutions.

• BYD Auto agreed to buy the mobility business of Jabil (NYSE: JBL) for around $2.2 billion.

• BradyIFS, owned by Kelso & Co. and Warburg Pincus, agreed to pay $1.7 billion for a 63% stake in Envoy Solutions, a provider of janitorial and food service products, from Mexican bottler Femsa.

• Tower Capital Asia is seeking a buyer for Eu Yan Sang International, a Singaporean seller of traditional Chinese medicines, per Bloomberg.

• Searchlight Capital Partners acquired alternative asset manager Gresham House for £470 million.

• Didi agreed to sell certain EV assets to Chinese EV manufacturer Xpeng (HK: 9868) for $744 million.

• Standard Chartered (LSE: STAN) agreed to sell its jet leasing unit for $700 million to AviLease, owned by Saudi Arabia's Public Investment Fund.

• L Catterton agreed to acquire nutritional supplements maker Thorne HealthTech (Nasdaq: THRN) for $680 million.

• KSL Capital Partners agreed to buy luxury hotel operator Hersha Hospitality Trust (NYSE: HT) for around $1.4 billion.

• Pure Health, owned by ADQ, agreed to acquire UK hospital operator Circle Health for $1.2 billion from Centene (NYSE: CNC).

• Rolex agreed to buy Swiss watch seller Bucherer.

• Cerberus agreed to buy Spring EQ, a provider of home equity financing solutions.

• Reveal, a provider of software services for law firms, is spending a combined $1 billion to acquire two e-discovery companies: Logikcull (backed by NEA, OpenView, and Storm Ventures) and IPRO (owned by Plexus Capital), per Axios.

• GTCR acquired Once For All, a provider of supply chain SaaS solutions, from Warburg Pincus.

• MaryRuth Organics, a health supplements maker backed by Butterfly Equity and CFT Capital Partners, has hired Houlihan Lokey to explore a sale that could be worth up to $1 billion.

• Altafiber raised $600 million in new equity funding from existing backers including Ares and Macquarie.

• Orora (ASX: ORA), an Australian packaging business, is in late-stage talks to acquire French glass bottle maker Saverglass from Carlyle following a failed process in 2021.

• Lufthansa is considering a sale of its insurance units Albatros and Delvag, per Bloomberg.

• Marfrig Global Foods agreed to sell a portfolio of livestock processing facilities to Minerva for $1.5 billion.

• Siam Cement, a Thai industrials business, is postponing a $2 billion domestic IPO of its chemicals unit. 

• Maynilad Water Services, a Philippine wastewater services provider, is considering a domestic IPO that could raise up to $1 billion, per Bloomberg.

• Databricks, developing a unified analytics platform for data engineering, is in talks to raise new funding at a $43 billion valuation. That’s up from its previous $38 billion valuation and follows its recent $1.3 billion acquisition of MosaicML.

• Redwood Materials, a battery recycling business, raised $1 billion in Series D funding at a $5.3 billion post-money valuation co-led by Goldman Sachs, Capricorn, and T. Rowe Price.

• AI21 Labs, a developer of enterprise NLP solutions, raised $155 million in Series C funding at a $1.4 billion post-money valuation from Walden Catalyst, Pitango, SCB10X, b2venture, Samsung Next, Google, and Nvidia.

• Apollo.io, a provider of B2B sales intelligence software, raised $100 million at a $1.6 billion valuation. Bain Capital Ventures led, with participation from insiders Nexus Venture Partners, Sequoia Capital, and Tribe Capital.

• Beta Bionics, developing a bionic pancreas system for diabetes management, raised $100 million in Series D funding. Sands Capital and Omega Funds co-led, with participation from Soleus Capital, Eventide Asset Management, Farallon Capital, Perceptive Advisors, RTW Investments, ArrowMark Partners, and Pura Vida Investments.

• Mediafly, a sales enablement and content management platform, raised $80 million. BIP Ventures led, with participation from Boathouse Capital.

• AeroSafe Global, a provider of outsourced life sciences cold chain services, raised $43 million. NewSpring Healthcare led, with participation from Peloton Equity, Merck Global Health Innovation Fund, Hamilton Lane, Flexstone Partners, Wave Equity Partners, and Escalate Capital.

• Televet, a telemedicine platform for veterinary clinics, raised $43 million in Series B funding from Hill's Pet Nutrition and existing backers Mercury Fund and Boehringer Ingelheim.

• Hyperproof, a provider of compliance management software, raised $40 million. Riverwood Capital led, with participation from Toba Capital.

• Rockset, developing a real-time cloud-native search and analytics engine, raised $37 million in equity funding (plus $7 million in debt). Icon Ventures led, with participation from Glynn Capital, Four River Partners, K5 Global, Sequoia Capital, and Greylock.

• Sortera, an AI-driven waste sorting technology company, raised $30.5 million in Series C funding. RA Capital Management-Planetary Health led, with participation from T. Rowe Price, Mineral Resources Group, Macquarie GIG Energy Transition Solutions, Assembly Ventures, Breakthrough Energy Ventures, and Chrysalix.

• CH4 Global, a producer of livestock supplements that reduce gastrointestinal methane, raised $29 million in Series B funding from DCVC and Cleveland Avenue.

• Hillhouse Capital is targeting around $1.4 billion for its latest fund.

• Elephant Partners raised nearly $800 million for its sixth venture fund.

• Marubeni and Mizuho are raising around $342 million for a private equity fund focused on overseas infrastructure.

• Telescope Partners is raising up to $270 million for its third growth fund.

• Sound Ventures is raising its fourth early-stage fund.

• FinTech Collective is raising up to $300 million for its sixth fund.

• Maddix Capital announced the launch of its $125 million hybrid fund focused on services businesses.

• Patron is raising $100 million for its second fund focused on early-stage gaming businesses.

• Energy Foundry is raising up to $100 million for its second early-stage cleantech fund.

• Panoramic held the final close of its SME Fund 3 after hitting its £100 million hard cap.

1. What do you do if your lender tries to force you into buying a pile of garbage?

• Amazon aggregators are trending south, and Apollo is getting dragged down with them. Their escape route includes the forced sale of one business in default to another — litigation looks the likely next step. (Check it out: Bloomberg)

2. Blue Owl patches things up in Wall Street’s usual way: more money.

• A nasty senior executive rift at Blue Owl, following the merger of alternative managers Dyal and Owl Rock, threatened to split the newly formed firm. The group hopes to have moved on with the signing of a minimum $34 million per year contract. (Check it out: Semafor)

3. Syndicated loans still aren’t securities, but make sure you don’t get mischaracterized.

Latham & Watkins’ Banking Practice breaks down the Second Circuit’s decision in Kirschner v. JP Morgan, getting you up to speed on the latest documentation best practices for your next syndication. (Check it out: Latham & Watkins)

Thanks for reading, catch you guys next week. Drop a line with any feedback or scoops (just reply here; kept anonymous).

— Sam