Blackstone (BX) Fund Secures $20 Billion from Saudi Arabia in Exchange for Fee Discount

Blackstone Group LP ’s new infrastructure fund allows Saudi Arabia to invest at a discount. What it gets in return is massive funding from the kingdom.

For every dollar that an investor pays Blackstone to manage its cash, Saudi Arabia gets to pay 15 cents less. Saudi Arabia’s sovereign wealth fund has committed as much as $20 billion to Blackstone for creating the world’s largest infrastructure fund.

According to Bloomberg, the terms (the majority of which remain undisclosed to the  public) include various concessions. There could potentially be lower management and incentive fees for the Saudis, as well as additional discounts based on a percentage of the revenue the fund generates from its other investors, as suggested by a Bloomberg report.

The infrastructure fund was first unveiled during a visit by Chief Executive Officer Stephen Schwarzman and President Donald Trump to Riyadh in May 2017. By the end of September, the infrastructure fund had raised $2.5 billion from outside sources.

Amid tensions between Saudi Arabia and other nations following the death of journalist Jamal Khashoggi, several companies including Blackstone have either cancelled visits to -- or put off deals with -- the kingdom. However, as far as Blackstone’s new infrastructure fund is concerned, the company said that it will go ahead with building the fund, while also taking stock about the ongoing tensions. “Like everybody, we’ve been concerned about what we’ve been reading the last couple weeks,” Blackstone President Jon Gray said.  “We take a long-term approach both to our relationships and to building businesses.”

Saudi Arabia's Public Investment Fund  initially proposed partial ownership of the vehicle, but Blackstone refused - according to the people familiar with the talks (as reported by Bloomberg). However, Bloomberg also indicates that the costs borne by Saudi Arabia’s sovereign wealth fund  might decline as they increase their capital contribution to the Blackstone fund, in addition to enjoying lower starting costs compared to many other investors of the infrastructure fund.