Blackstone Has Just Raised Another Record Fund. These Returns Explain How.

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Blackstone Global Head Of Real Estate Jonathan Gray

Last week Blackstone announced that it had raised €7.8B for its fifth dedicated European property fund — the largest European fund ever.

In doing so it beat its own record — its third and fourth European funds were also record hauls of equity. The global funds it raises also continuously better Blackstone’s own personal bests — the last one, closed in October 2015, took in $15.8B.

How does it consistently keep growing, and stay so far ahead of the pack? There is one table, admittedly slightly complex, which explains it exactly.

As a publicly traded company, Blackstone very handily publishes the returns of every fund it has ever raised, and tucked away in the middle of its 227-page quarterly report are the returns from its real estate funds, led by Jonathan Gray.

And as the table on page 85 shows, they are stellar.

Its global funds have an overall average internal rate of return of 19%, and a return on capital of 1.9x. That is over a period of more than 20 years, including the biggest downturn since the depression, and while raising bigger and bigger funds, confounding the wisdom that size dilutes returns.

The Rotunda in Broadgate Circle, London

The European results are similarly impressive. Over a 15-year period, Blackstone brought in an internal rate of return of 16% and return on capital of 1.7x.

The best-performing European fund is Blackstone Real Estate Partners Europe III, which raised €3.2B in 2008, the bottom of the market when the pickings were richest. It bought a 50% share of giant London office complex Broadgate for an equity stake of around £75M in September 2009, which it sold to GIC for around £450M in 2013, for instance.

That fund has a 22% IRR and 2x return on capital. The follow-on fund, investing from 2013 to 2016, has the same IRR, albeit a lower return on capital of 1.5x.

Even the fund investing at the previous peak in 2007 has a 9% IRR and 1.7x return. Compare that to Carlyle’s European funds from the same period, one of which lost all of its investors’ equity, its annual report shows (page 25).

That sort of consistency is why institutional investors place large amounts of capital with Blackstone. Overall, their funds have made an IRR of 18% over 25 years. Investing with them brings near certainty of not losing your money, and making a handsome return for the taken. And so the funds grow ever larger.

The latest European fund, Blackstone Real Estate Partners Europe V, is already taking private a €3.8B listed Finnish property company, and is likely to invest more in the Nordics, as well as in Spain, Italy and German offices.

Further reading: China’s €12B Blackstone Buy Is About Foreign Policy And Owning E-Commerce.

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