Blackstone lowers carry on infra fund to 10%

After having uncharacteristic trouble raising its debut infrastructure fund – which recently held a first close on $200 million – The Blackstone Group has decided to alter its management fees, a person familiar with the matter told sister news site InfrastructureInvestor. The firm has cut the carried interest fee on the fund from 15 percent paid over an 8 percent return hurdle to 10 percent paid over the same hurdle. 

The fund, Blackstone Infrastructure Partners, has been in the market since last year and is looking to raise $3 billion in total commitments, according to fundraising database InfrastructureConnect. Blackstone originally charged a management fee of 1.5 percent for fund commitments under $250 million and 1 percent for commitments under $250 million. 

However, under its new fee structure, commitments greater than $150 million will be subject to a 50-basis point fee on committed capital and a 100-basis point fee on invested capital; commitments less than $150 million will be subject to a 75-basis point fee on committed capital and a 125-basis point fee on invested capital. 

Market sources peg the fund’s current target at $2.5 billion. 

In infrastructure, private equity-style fee structures have stirred controversy, as many large pension plans – traditionally viewed as sure sources of capital for this growing asset class due to their asset-liability matching needs – have pushed back on the so-called “2 and 20” private equity fee model for infrastructure investments. 

In response to such pressures, some alternative investment managers already in the market have begun to market their infrastructure funds with lower fee structures. Earlier this year, InfrastructureInvestor broke the news that private equity heavyweight Kohlberg Kravis Roberts is charging investors in its debut $4 billion infrastructure fund a management fee of 1 percent and a carried interest fee of 10 percent. 

It isn’t just private equity firms that are finding a difficult fundraising market for their infrastructure funds. Investment bank Goldman Sachs, which has been in the market with its second infrastructure fund, is also said to be finding it difficult raising capital. The firm has lowered the fund’s carried interest from 20 percent to 10 percent.

A person familiar with Goldman's fundraising effort told InfrastructureInvestor that the fund is currently just shy of $3 billion. The firm is expected to hold a final close for the fund on $3 billion in two months’ time, the person said. Goldman Sachs Infrastructure Partners II is targeting $7.5 billion, according to InfrastructureConnect.