Oregon commits $200m to Blackstone

The Oregon Investment Council has committed $200 million to The Blackstone Group’s sixth buyout fund, which is expected to close on $13.5 billion.

Oregon has never before committed to a Blackstone private equity fund, and said investment staff “believes that Blackstone has developed into a durable, institutionalised organisation that will stand the test of time, and has demonstrated a proven formula for building value over a long period of time, and during multiple market cycles”, according to pension documents.

Oregon is a LP in Blackstone Real Estate Partners VI.

Blackstone has developed into a durable, institutionalised organisation that will stand the test of time, and has demonstrated a proven formula for building value over a long period of time, and during multiple market cycles. Oregon Investment Council

The new relationship with Blackstone will help the OIC, which manages the state’s $65 billion pension, diversify the pension’s “large corporate finance manager pool”, OIC said in documents. OIC is “contemplating” cutting its next commitment to Kohlberg Kravis Roberts to reduce the pension’s “single-manager concentration risk” to KKR.

Part of the reason Oregon hasn't committed to a prior Blackstone private equity fund is because of the firm's fee sharing structure in prior funds, council members said during the meeting. Oregon received a “special” fee structure from Blackstone for its commitment to Fund VI, but details about the fees were not available. A pension spokesperson declined to talk about the fee structure, and Blackstone did not return a request for comment Friday.

“We created a special fee structure for Oregon. If we're lucky enough to get your support [on Fund VI], we will need … as a matter of ethics, to offer it to other LPs,” Blackstone president Tony James said during the meeting. “We haven't told them that yet.”

Blackstone was expected to hold a final close on Fund VI on 30 June, according to the Oregon documents. The firm, during a conference call on 22 July, said the fund held a final close. A Blackstone spokesperson clarified the fund is near a final close, with a few limited partners still finalising contracts for commitments.

Oregon presumably was one of the LPs, having just approved the commitment this week. 

Katherine Durant, a member of the OIC, questioned James about the performance of Fund V, which according to documents council members had showed a -12 percent internal rate of return. Those numbers were from the end of 2009.

As of 30 June, Blackstone V was being carried at cost, James said. Blackstone also has had 16 exits in the past nine months, which will deliver about $4 billion to LPs, James said.

Fund V, which collected $21.7 billion in 2007, had a -14.24 percent internal rate of return, according to performance numbers as of 31 May 2010 posted by the University of Texas Management Company. Fund V has a cash-on-cash return of .09 percent, according to university documents.