South Carolina notes Blackstone’s ‘more expensive’ fees

The $29bn pension plan said that the New York-based private equity firm’s core-plus fund has higher fees than similar funds.

The South Carolina Retirement System Investment Commission (RSIC) has committed up to $300 million to The Blackstone Group’s core-plus fund, Blackstone Property Partners (BPP). The commitment will consist of $100 million to $150 million in the fund’s first close, plus an additional $150 million to $200 million for other potential opportunities.

The $29.05 billion pension plan made the commitment despite the higher costs of investing in BPP. “BPP’s fund structure is more expensive compared to other core-plus funds,” RSIC’s real estate consultant, AONHewitt, noted in a review of the fund. BPP has an asset management fee of one percent, which is fairly standard for a core-plus fund, and limited partners that agree to invest more than $300 million to the vehicle will see that fee reduced to 0.85 percent.

However, investors also must pay an incentive fee of 10 percent carried interest, over a low preferred return of seven percent, with a 50 percent catch-up to Blackstone. The overall expected fee for the fund therefore actually falls in the 200 to 250 basis point range, the review said.

By contrast, other core-plus funds that charge an incentive fee do so with a higher preferred return hurdle or only on investments that have been fully realized. Most core-plus funds typically have total fees of less than 200 basis points, AONHewitt added.

Additionally, AONHewitt observed that Blackstone was new to the core-plus space, and that BPP was its first open-end fund. One mitigating factor, however, is the hiring of two firms to bridge the differences between the firm’s closed-end vehicles and its new open-end offering. Altus, a valuation advisory firm that works on many open-end vehicles, will oversee and coordinate the internal and external valuation process, while State Street Global Services will serve as fund administrator.