Blackstone raised $14 billion to invest in infrastructure — now it’s figuring out where to put all that cash

Reuters

Blackstone has raised a massive fund to invest in infrastructure, but analysts are focused on the challenges that come with deploying $14 billion in capital.
Business Insider spoke with a person familiar with Blackstone’s strategy who said the firm is targeting long-term, billion-dollar-plus deals in North America.
Competition for assets is stiff and funding plentiful as investors see infrastructure as an alternative to low-yielding fixed-income products.
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Blackstone has amassed $14 billion to invest in infrastructure, which means it is primed to be the No. 3 investor in the asset class globally, but analysts are wondering how the private equity giant will go about spending all that money.

With interest rates relatively low, investors on the hunt for yield have poured more money into infrastructure as an alternative to fixed-income products. But that has caused stiff competition and driven up prices for infrastructure deals.

"The question is, ‘What do you buy?’" Glenn Schorr, an analyst at Evercore ISI who covers Blackstone, told Business Insider. "In infrastructure, there just aren’t that many bridges, tunnels, wind plants and electric facilities. And they don’t turn over that often."

When Blackstone held its second-quarter earnings call last week, Schorr had asked about what infrastructure opportunities were out there, noting that they could be challenging to find. Blackstone COO Jon Gray called it a "fair question."

Since January, the firm has announced two investments. Gray pointed to a "couple other" large opportunities Blackstone was looking at, but did not disclose names.

"It is a competitive space," Gray said on the call, "By playing where the air is thinner, which is really the competitive strength of our infrastructure business, we’ve got a better competitive dynamic."

Business Insider then spoke with a person familiar with Blackstone’s efforts who said that the infrastructure fund has been targeting investments of more than $1 billion and will have a North American focus. By focusing on bigger deals, Blackstone will be going head-to-head with a small number of players who have deep pockets.

Currently, Blackstone has about 20 percent of its fund deployed, and plans to put the rest to work over the coming two to three years, the person said.

At Blackstone, a team of more than 35 are working the phones to find investments in industries that span energy, transportation, communications, water and waste, the person said.

The field vying for multi-billion dollar infrastructure deals is narrower than for smaller deals, this person added, naming only GIP and Brookfield as infrastructure investment firms "in the same zip code."

GIP and Brookfield are No. 1 and No. 2 in terms of overseeing infrastructure investments, according to Preqin data.

Others such as KKR and Morgan Stanley have large infrastructure funds as well. KKR closed a $7.4 billion infrastructure fund last year, while data from Preqin shows Morgan Stanley overseeing $4 billion.

Blackstone will handle infrastructure deals principally in North America and is looking for long-term investment opportunities with a timeline of two decades or more, the person said. That’s in contrast to a traditional private-equity business which can buy and sell companies in a five-year time period.

There is a "massive" set of potential infrastructure deals that fit those parameters, this person said. And Blackstone would only need to do two or three deals a year to deploy its capital.

Although Blackstone’s infrastructure fund started in 2017, the firm has been involved in various kinds of investing in the sector over 15 years through other funds.

Still, Chris Kotowski, an analyst at Oppenheimer, flagged Blackstone’s relatively brief history in infrastructure fundraising. Blackstone in 2017 announced its intention to raise $40 billion in infrastructure funding and has been hitting up investors, from pension plans to insurance companies, ever since.

"I’m not sure exactly what their approach is going to be," said Kotowski.

The infrastructure fund’s first deal came in January, when it acquired a controlling stake in the oil and gas pipeline company, Tallgrass Energy. In March, it announced an investment in marine terminal operator Carrix, which owns SSA Marine and operates more than 250 port and rail locations worldwide. Blackstone characterized the investment as growth-oriented and did not disclose the exact financial terms, though the source familiar with Blackstone’s strategy said they fit within the firm’s more than billion-dollar focus.

Bankers told Business Insider that the level of capital flowing into infrastructure funds should be seen as a sign of opportunity for global investment, not a constraint.

"Overall, there is a lot of capital coming into the space," said Michael Comisarow, managing director leading Credit Suisse’s infrastructure initiative. "But there is a reason for that. There have been a lot of assets to chase."

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