“There aren’t many firms that can write a $5 billion equity cheque, certainly not on their own,” says Joe Baratta, Blackstone’s global head of private equity.

The New York-based firm has reclaimed its position at the top of the PEI 300 after losing out to Carlyle in 2018. Baratta is the man charged with deploying the $68 billion of dry powder sitting within Blackstone’s corporate private equity arm.

Talking to Private Equity International in the firm’s Manhattan headquarters, he is outlining the benefits of being the industry’s largest. “If we have competitive advantage in this world, it’s the large, more complicated end of the market,” he says.

Blackstone has had a busy year, even by its standards. Since we last published the PEI 300, our proprietary ranking of the largest funds in the business based on their five-year fundraising totals, the firm has launched three new investment platforms – focused on life sciences, growth equity and, most recently, impact investing – and decided to convert to a C-corporation.

It’s also midway through raising what the market expects will be the largest ever private equity fund. Blackstone Capital Partners VIII has already held a first close on $22.2 billion and is expected to surpass the $24.8 billion record laid down by Apollo Global Management’s ninth flagship fund in 2017.

For Baratta, being the largest in the business means Blackstone can credibly tell a deal counter-party the firm can deliver a certain amount of equity under its own steam in a short timeframe. Its firepower and infrastructure means it can take on “lots of M&A complexity”, such as take-privates, and is “viewed as a credible partner for large corporates who want to divest a large asset but retain a stake in the business”, Baratta says, pointing to the firm’s $20 billion acquisition alongside Canada Pension Plan Investment Board and GIC of a majority stake of the financial and risk unit of Thomson Reuters as an example.

While Baratta sees the mid-market as very well-capitalised, he sees less competition at Blackstone’s end of the market.

“There are many thousands of publicly traded companies with market caps above $5 billion. There are, again, many thousands of divisions of large corporates that would have market caps above $5 billion. Our available market is the whole of the public market cap in the world above $5 billion. That is not a small market, that’s a giant market.”

In mature and low-growth economies, corporates are focusing on core assets and divesting of non-core assets, creating “enormous” dealflow. Baratta admits these transactions are harder to access and execute than those in the mid-market – but again, sees that as playing to the firm’s competitive advantage.

Complexity breeds complexity

Operating at such a scale is not without its challenges: it requires more people – Blackstone has a private equity investment team of 150 plus a portfolio operations team of more than 40 – which in turn requires more management infrastructure.

Another potential challenge is making sure the firm culture – and investment decision-making – is consistent globally. Blackstone has addressed this by structuring the firm as a single, global business, rather than a regionalised business.

“We hold every investment we’re making globally to the same set of standards and a small group of people review every investment we make. That’s forced us to narrowly define what we’re doing in corporate private equity, which is sizeable control buyouts.”

It’s also limited the range of investment to those geographies Blackstone considers to be more important in the scope of global economies.

To remain nimble, Blackstone keeps the senior organisation tight: the firm has around 25 private equity deal partners globally, all of which have long tenures at the firm.

Blackstone’s corporate private equity arm has delivered net returns since inception of 15 percent, and its flagship private equity funds have, on average, delivered a realised gross multiple on invested capital of 2.2x, according to a presentation at the firm’s investor day in September.

Blackstone’s fund families

In October Blackstone announced it had acquired global life sciences investment firm Clarus and launched Blackstone Life Sciences, which will invest across the life cycle of companies and products within the key life sciences sectors. The firm plans to launch its initial fund for the strategy this quarter and, while it has not specified a target size for the vehicle, on the Q1 earnings call, management said Clarus most recently raised a $1 billion fund and the successor is to likely be “multiples of that”.

“The private capital markets for life sciences investing is one of the least well-developed compared with any other type of investing, and it’s very fragmented,” Baratta says.

“You don’t have a large-scale, industry champion in the life sciences industry like [we’ve seen] develop in other technology.”

Blackstone believes Clarus, a 100-person organisation, can become that champion.

“We think we can take their scale from a few billion dollars of assets under management over time to multiples of that amount.”

Not long after announcing the Clarus deal, Blackstone hired growth equity expert Jon Korngold from General Atlantic to launch a growth equity platform, which will look to invest in consumer, healthcare and pure technology companies. A fund for the strategy is set to launch in the second half of the year.

“Our BXG growth equity platform, when combined with the synergies offered by Blackstone’s other asset classes, is uniquely positioned to add value to fast-growing companies in ways that other stand-alone growth equity firms simply cannot,” Baratta says.

“We also look for situations where we can play a truly active role alongside management – that is, you won’t typically find BXG being the 10th investor in a cap table of a high-profile company in the way that many other growth equity firms have chosen to do in recent years.”

The impact investing platform – announced after our interview – will be nested under the firm’s secondaries unit Strategic Partners. It will make direct investments and co-invest alongside existing impact managers, leveraging Strategic Partners’ expertise across private equity, real estate and infrastructure, and will focus on health and wellbeing, financial access, sustainable communities and green technology companies in developed markets.