The wide-moat firm has inked a memo of understanding with Saudia Arabia's Sovereign Wealth Fund.
By Stephen Ellis | 05-22-17 | 10:00 AM | Email Article

 Blackstone  has signed a nonbinding memorandum of understanding with Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, for a $40 billion infrastructure-oriented fund that is primarily focused on the United States, but with a global mandate. The PIF plans to contribute $20 billion, while Blackstone will raise the remaining capital from other limited partners. We plan to maintain our wide moat rating and $37 per unit fair value estimate for Blackstone. The $40 billion in incremental assets under management would be an 11% increase in AUM, given Blackstone's $368 billion in AUM in the first quarter. We see the fund as supporting our existing forecasts for AUM to reach $550 billion in 2020 and economic net income forecasts of more than $4 billion, and note that the fund matches up well with Blackstone's ability to be innovative with new strategies, attracting incremental AUM. 

Stephen Ellis is an energy and utilities strategist for Morningstar.

With debt, Blackstone expects to be able to invest in more than $100 billion in infrastructure projects, and this fund marks the first large dedicated fund to infrastructure, though Blackstone has certainly pursued these types of efforts (more than $40 billion invested over the past 15 years) in the past as part of general funds. Infrastructure investment has been an area of strong interest by limited partners, with peers such as KKR ($3.1 billion for a 2015 fund), Oaktree, Brookfield Asset Management (which raised a $14 billion fund in 2016), and Global Infrastructure Partners (a recent $15.8 billion fund) all operating in the space. The niche is attractive because it offers the opportunity to invest in investments that can generate fairly reliable cash flows for decades, often protected by regulation or geographic barriers to entry, in a fund that matches up with the investment horizon for sovereign wealth funds.

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