Blackstone's Acquisition Fund Faces Setbacks as Interest Rates Bite

The fundraising efforts of Blackstone's flagship acquisition fund have reached their conclusion, albeit later than expected and at a reduced scale compared to initial projections. Insiders with knowledge of confidential discussions noted that the company, which began the fundraising process in 2022, informed investors that the target sum slightly exceeds $21 billion, with completion expected by the end of March. This extended timeline contrasts with the previous year's trend, where similar funds typically completed fundraising in about half the time.

Traditional private equity strategies involve leveraging debt to acquire companies and exiting with a profit. However, the elevated costs associated with borrowing have dampened the enthusiasm for this strategy among pensions and other large investors. A February report by McKinsey anticipates that by 2024, the sector will experience a downturn in fundraising for the third consecutive year. Blackstone, the world's largest alternative asset manager, is not immune to these challenges.

Blackstone had commenced preparations for this fundraising round just prior to the Federal Reserve's interest rate hikes aimed at tackling rising inflation. During a period when institutional investors faced tighter cash flows, the company found itself engaged in an increasingly competitive environment. Initially, investors were informed of a planned completion in the first half of 2023. However, the timeline was subsequently extended to later in the year, with the fund remaining open to slower-paced investors.

Expectations for the fundraising amount were also revised downward. Originally, reports suggested that Blackstone might aim to raise as much as $30 billion by the end of 2021. By 2023, the figure had been adjusted to approximately $25 billion to match the previous fund. Early last year, Blackstone set its sights on a minimum target of $20 billion.