Blackstone infrastructure fund eschews PE-style fees

The Blackstone Group, one of the world’s largest private equity firms, will eschew the conventional private equity-style fee structure for its infrastructure investments, PERE's sister website, InfrastructureInvestor, has learned.

The firm will charge limited partners in Blackstone Infrastructure Partners carried interest of 15 percent over an 8 percent return hurdle, according to a source familiar with the fund. It will also charge a management fee of 1.5 percent for fund commitments under $250 million and 1 percent for commitments under $250 million, according to the source.

Blackstone declined to comment.

To date, the firm’s alternative investment funds, including private equity and real estate vehicles, have featured more conventional fee structures typical of private equity firms. While management fees have typically hovered between 1.5 percent and 2 percent, carried interest rarely strays from 20 percent for private equity funds.

In infrastructure, however, private equity-style fee structures have stirred controversy, as many large pensions plans – traditionally viewed as sure sources of capital for this growing asset class due to their asset-liability matching needs – have pushed back on the so-called “2 and 20” private equity fee model for infrastructure investments. 

Blackstone Infrastructure Partners is the New York firm's debut closed-end infrastructure fund targeting between $2 billion and $3 billion.

Last month, representatives from about $1 trillion worth of US pension and institutional investment plans met at Stanford University to discuss, among other things, alternatives to paying private-equity style fees for infrastructure investments. Many of them favoured investing in infrastructure directly to avoid such fees, according to multiple individuals present at the meeting.

In response to such pressures, some alternative investment managers already in the market have begun to market their infrastructure funds with lower fee structures. Earlier this year, InfrastructureInvestor broke the news that private equity heavyweight Kohlberg Kravis Roberts (KKR) is charging investors in its debut $4 billion infrastructure fund a management fee of 1 percent and a carried interest fee of 10 percent.

David Snow contributed reporting to this article.