Chubb Limited (CB) is a global provider of insurance products covering property and casualty, accide...
Blackstone Targets Infrastructure
05/30/2017 2:50 am EST
Blackstone (BX) announced intentions to raise a $40 billion infrastructure fund, including an already funded $20 billion through the Public Investment Fund of Saudi Arabia, notes Todd Shaver, editor of Bullmarket.com.
This is an impressive event and is being interpreted by investors as a critical valuation catalyst.
One key implication is that this new fund will diversify the company into a 5th leg of growth (adding infrastructure to the existing list of private equity, credit investing, real estate, and hedge funds investments).
With focus turning to fiscal versus monetary stimulus on the global scene, the timing seems just right to be getting into infrastructure. Below we highlight some of the key takeaways about the new infrastructure fund.
Here are our key takeaways:
1) We expect there will be a 50 basis point management fee during the capital raising stage (50 basis points multiplied by $40 billion is a lot of money!)
2) We believe the management fee will rise to 1% following capital raising (upside to the math describe above— awesome!)
3) Management fees will be paid on “fair value” rather than “raised capital” so investments and mark-to-market will positively impact management fees
4) The fund will not be subject to redemption risk (investors can’t get out, so fees are going to be very stable -– good.)
5) We believe the fund will seek a 10% IRR hurdle (i.e., no investment will be made if they aren’t likely to return at least 10% –- pretty standard)
6) Management expects to ultimately make $100 billion of infrastructure investments using leverage (thus the fees will be juiced even more)
The stock rose 7% on the announcement as one firm upgraded the shares to Buy seeing what we described above. With the consensus EPS outlook calling for around $3 this year, and a 7% dividend yield still in place, the stock remains a compelling value.
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