Blackstone’s new infrastructure business will target transactions in the energy sector, listed infrastructure companies, and large projects that require the scale of capital the firm is looking mobilise.
The lack of an infrastructure bill from the Trump administration does not diminish the “huge opportunity” for the new business, said Blackstone president Tony James during a third-quarter earnings call.
Earlier this year, Blackstone announced it had raised $20bn (€16.9bn) from the Public Investment Fund of Saudi Arabia for a new infrastructure fund. It said it would bring in other $20bn from third-party investors, while using leverage to give it $100bn of invesmtent capacity.
This week, James said Blackstone turned away nearly $9bn of investment opportunities in the past year that it could have considered for the fund.
“We’re really just beginning the institutional part of the fundraise,” he said. “We’re not in a position to be executing transactions at this point, and you shouldn’t expect to see anything until the middle part of next year as a practical matter, in terms of deals being inked.”
Blackstone sees numerous opportunities to deploy capital for the fund, which will concentrate on the North American markets. “We think there are opportunities to take existing public companies private,” said James.
“In all of our businesses we have bought listed companies,” he added. “There’s very rarely a listed company that we buy where can’t significantly improve the operations, the efficiency, and the returns to create some enduring value for our investors. We expect that to be a major part of our activity in infrastructure.”
One obstacle to infrastructure investing in the US is that many assets, such as airports, are owned and operated by state and local government entities or public agencies. The one sector of essential services that has mostly been privatised is energy. “In the US, most of the infrastructure activity has been in the energy-related spaces,” said James. “We think there will continue to be good opportunities in assets not directly related to oil prices, such as mid-stream, renewables and transmission.”
Blackstone’s energy fund has made several investments in mid-stream assets this year, and its energy portfolio is approximately $7bn. Blackstone also recently acquired Harvest Fund Advisors, which primarily invests in public master limited partnerships (MLPs) that hold US midstream energy assets.
Another way to increase the supply of infrastructure assets is to carve out businesses from larger companies. James said: “There are a number of assets owned by large companies that are infrastructure type assets that would have much more value pulled out of a company than embedded in those companies, given the multiples the companies trade at.
“We think there will be major corporations, integrated oil companies and others, repositioning those assets into the infrastructure market.”
The most significant opportunity may be major public works. James stepped down from his position on the board of directors of the Port Authority of New York and New Jersey when Blackstone entered the infrastructure business. The Port Authority is the lead agency on one of the biggest potential infrastructure projects in the US – new tunnels under the Hudson River linking Manhattan to New Jersey.
“It doesn’t take a genius to see the crumbling infrastructure of the US and the massive need for new investment,” James said. Blackstone aims to alleviate that need. “Over time a big part of this fund will be solving that problem,” he adds, helping to increase “American competitiveness and help create jobs, at a cost of capital that is affordable for society.”
Blackstone believes its ability to mobilise and deploy large blocks of capital gives the firm an edge. “Our infrastructure business is almost unique in the market, with a scale to do things no one else can do, which is how we position our real estate business,” said James.
“I think there are a lot if big [projects] out there that other people can’t do today, that are not actionable, that we will have the opportunity to pursue.”
Asked by IPE Real Assets if the new Hudson River tunnels are on that list, James replied diplomatically. The tunnel project “remains a priority” for federal and state officials in New York and New Jersey, he said.
“I think you should expect to see that fast tracked,” James said. Blackstone is keeping an eye on the progress of the project. “That’s the kind of opportunity I hope will be an attractive target for our fund.”
Read the cover story of the latest edition of IPE Real Assets, US Infrastructure: Land of opportunity