Blackstone Group LP said on Thursday that New Jersey's public pension fund plans to invest a total of up to $2.5 billion in its funds, making it the largest single-year commitment in the private equity group's history.
New Jersey Division of Investment (NJDOI), which manages the $66.2 billion pension fund, is to invest $1.8 billion across Blackstone's investment businesses, bringing its total commitment in Blackstone over the last year to $2.5 billion.
The move is the latest bid among the major buyout houses to boost their assets under management by offering to manage large amounts of capital across different asset classes in exchange for more attractive investment terms.
Blackstone's rivals KKR & Co LP and Apollo Global Management LLC raised the "mega-mandate" stakes last month by announcing they would manage $3 billion each on behalf of the Teacher Retirement System of Texas.
New Jersey's investment is to be split between $1 billion allocated to existing Blackstone funds and $1.5 billion in tailor-made products, not covered by existing offerings, in order to tap opportunities in global market dislocations.
A source familiar with the agreement said New Jersey would get a better deal on fees on the $1.5 billion custom-managed accounts, but not on the existing funds where the $1 billion will be invested.
Aggregate fee savings for NJDOI over the life of the agreement are projected to exceed $120 million, Timothy Walsh, director of its investment department, wrote in a memorandum on Thursday.
Walsh added the deal would allow the New Jersey Division of Investment and Blackstone to execute on a broad set of opportunities where there is an absence of buyers with available capital or other impediments to executing in a timely manner.
Offering investments across different alternative asset platforms beyond buyouts, such as credit, real estate and hedge funds, allowed Blackstone to increase its fee-earning assets under management by 27 percent year-on-year to a record $133 billion in the third quarter.
NJDOI's alternative assets portfolio stood at $13.4 billion as of July 29, some 18.3 percent of its portfolio and less than its 19.25 percent target allocation.
The $1.5 billion bespoke investments will be split into three managed accounts with a management fee of 1 percent on invested capital and carried interest averaging 15 percent.
Of the remaining new $1.8 billion, $150 million will go to Blackstone Energy Partners I, Blackstone's $3 billion energy-focused buyout fund.
NJODI will also put $100 million in GSO Special Situations Fund, LP, a $3.5 billion credit investment fund, and $50 million in Blackstone Capital Partners VI, a $16 billion buyout fund.
David Blitzer, a 20-year veteran of Blackstone, will be NJDOI's primary point of contact for the investments, Walsh wrote.
Law firm Simpson Thacher & Bartlett LLP advised Blackstone on the deal with NJDOI.
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