Blackstone Group LP (BX.N), the world's largest alternative asset manager, is close to securing a major managed account on behalf of CalPERS, one of private equity's largest investors, a source familiar with the matter said on Friday.
In an increasingly competitive fundraising environment, diversified private equity firms have been capitalizing on their scale by offering large pension funds the opportunity to invest in special accounts across their investment funds.
This boosts the assets under management of firms such as Blackstone, which have moved beyond buyouts into areas such as credit, hedge funds and real estate. In exchange for their major commitments, the investors get a break on management fees.
An agreement between CalPERS and Blackstone could be reached as early as next week, the source said, without elaborating on the size of the deal or its details. The source was not authorized to speak publicly about the issue and asked not to be identified.
Spokespeople for Blackstone and CalPERS declined to comment.
The CalPERS commitment would represent a coup for Blackstone after the New Jersey Division of Investment(NJDOI), which manages a $66.2 billion pension fund, agreed last December to invest $1.8 billion across Blackstone's investment businesses, bringing its total commitment to $2.5 billion. <ID:N1E7B70VA>
Blackstone rivals KKR & Co LP (KKR.N) and Apollo Global Management LLC (APO.N) had raised the "mega-mandate" stakes a month before by announcing they would manage $3 billion each on behalf of the Teacher Retirement System of Texas.
Private equity firms typically charge around 1.5 percent of committed capital as a management fee but investors may pay different fees based on the size of their commitments. "Mega-mandates" allow investors to pay lower fees for big commitments.
Some 1,853 private equity targeting a total of $787 billion were fundraising as of the start of the second quarter, a 19 percent year-on-year rise in the aggregate capital sought, according to market research firm Preqin.
Blackstone, whose investments include The Weather Channel, Pinnacle Foods and SeaWorld Parks & Entertainment, has seen its assets under management swell to a record $190 billion as of the end of March.
Its latest buyout fund, Blackstone Capital Partners VI, has raised over $16 billion; its flagship real estate fund, Blackstone Real Estate Partners VII, has raised about $10 billion while its new energy fund has accumulated about $1.5 billion in committed capital.
CalPERS, the California pension fund for public employees, had invested $825,972 million in Blackstone shares and a total $771 million in several of its funds as of the end of June 2011, according to the latest data available on its website.
Fortune's Dan Primack reported on the deal between Blackstone and CalPERS earlier on Friday.
(Reporting by Greg Roumeliotis in New York; Additional reporting by Jim Christie in San Francisco; Editing by Richard Chang)