Blackstone’s impact success hinges on its secondaries relationships

This week Blackstone became the latest manager to launch an impact investing platform, joining the likes of Bain Capital, Goldman Sachs and Partners Group.

The world’s largest private equity firm hired Tanya Barnes, a former Goldman Sachs executive, to lead its efforts in the area. The strategy sits within the firm’s Strategic Partners unit. Led by Verdun Perry, the team closes one or two deals on average every week and has 3,500 fund relationships across 1,300 GPs. Strategic Partners came fifth in the most recent SI 30 ranking of the largest secondaries fundraisers, having amassed almost $14 billion in the five years to June 2018.

To be clear, this isn’t a secondaries play; the impact platform will not be acquiring stakes in impact funds. Rather, it will try to tap into Strategic Partners’ fund and GP relationships. The unit acquires everything from multi-billion diversified portfolios of limited partnership stakes as well as single fund interests worth as little as $100,000.

It’s clear the group has been building a war chest of fund and GP relationships, and data to boot. It plans to leverage these relationships for its impact platform mainly through co-investments, though the unit can also make primary commitments to impact funds, according to a source familiar with the firm.

It’s interesting that Blackstone has decided to use co-investments to launch its impact strategy, as opposed to raising a direct investing fund, à la KKR or TPG. Compare this approach with the way it entered the life sciences arena by acquiring specialist manager Clarus, and it looks like a tentative step into impact.

While it is a private equity behemoth, Blackstone knows it is an impact novice. It has decided the best way for it to get on the bandwagon is to focus on smaller impact managers and help them make larger deals, as well as leverage relationships with generalist firms to make impact-focused deals, the source says.

Why house an impact unit within a team known for its secondaries capability? If the platform were to sit within Blackstone proper, it would be difficult for the team to co-invest alongside competitor GPs’ impact funds. KKR, for example, might not want Blackstone as a co-investor on an impact deal but would be more comfortable with Strategic Partners, which presumably already holds LP stakes in KKR funds acquired on the secondaries market.

While Blackstone has a clear idea of how it will measure impact – it’s understood to be custom-building an impact tool to measure impact including drawing on industry best practices – the success of the platform appears to hinge on the amount of co-investment dealflow the unit is shown.

Write to the author: adam.l@peimedia.com or @adamtuyenle