Blackstone may want $40 billion for infrastructure

Blackstone Group LP would target as much as $40 billion for infrastructure deals if the world's biggest private equity firm re-enters the sector, one of its top dealmakers said.

“To be relevant in that end of the market I think you need to be deploying billions of dollars at a time, not hundreds of millions, and so you're probably talking about a vehicle that's $20 billion, $30 billion, $40 billion dollars of equity,” Joe Baratta, Blackstone's global head of private equity, said Tuesday in an interview with Bloomberg Television's Erik Schatzker.

The current political climate -- in which Republicans and Democrats agree that more infrastructure spending is required in the U.S. -- is, for the first time, positioning government entities to engage with private capital providers “to do major infrastructure projects,” said Mr. Baratta, 46. Blackstone hasn't yet started an effort to raise new money for such deals, he said.

Blackstone tried raising at least $2 billion for an infrastructure fund after the global financial crisis, but then spun the group out in 2011 to become Stonepeak Infrastructure Partners. Blackstone has mulled restarting an infrastructure effort for a while, President Tony James said last week on an earnings conference call with analysts, adding that the firm has “plans to add funds in that space.”

Private infrastructure funds had a record $373 billion under management as of June 2016, according to research firm Preqin. About 38% of that amount is dry powder, or money that hasn't yet been deployed.

“Spending needs are likely to amount to trillions of dollars over the next decade” globally, said Tom Carr, the head of real assets products at London-based Preqin. “The industry will have to evolve to meet the challenges this will present. Governments may increasingly look to use private funding to meet the shortfall between national infrastructure spending and budgetary constraints, and fund managers will have to ensure that they are able to appeal to these public institutions.”

Global Infrastructure Partners, the owner of London's Gatwick airport, recently gathered $15.8 billion for the largest fund of its kind, Chairman Adebayo Ogunlesi said in an interview. GIP's previous pool finished collecting $8.25 billion in 2012.

Brookfield Asset Management Inc. finished raising $14 billion for its third infrastructure fund last year, exceeding a $10 billion target. Carlyle Group LP is gathering money for a new global infrastructure fund, its executives have said.

Blackstone has deployed about $6 billion of fund capital in 25 to 30 infrastructure deals, much of which has been in the energy sector, Mr. James said last week on an earnings conference call with media. Annualized returns on those investments have been as high as 40%, he said.

“The big area that we're not in is infrastructure, so it's obviously a target of opportunity for us,” Mr. James said. “We're getting a lot of encouragement from LPs to get into the business, and so it's something we're focused on,” he said, referring to limited partners, or fund investors.

President Donald Trump has said he wants to make U.S. infrastructure a “golden opportunity” for accelerated economic growth and productivity gains by targeting new investments. Steve Schwarzman, Blackstone's co-founder and chief executive officer, serves as chairman of Mr. Trump's strategic and policy forum, a group of business leaders that will advise the president on job creation and economic growth.

Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.