Blackstone Said to Recommend Own Offer for Client’s Fund Stakes

Jul 18, 2014 12:11 pm ET

July 18 (Bloomberg) -- Blackstone Group LP recommended a client should sell about $250 million in private-equity investments to another arm of the U.S. firm, according to two people with knowledge of the matter.

RCP Advisors LLC, a Chicago-based company that invests in funds on behalf of other funds, hired Blackstone’s Park Hill Group Inc. unit to sell a bundle of 10-year-old investments, said the people, who asked not to be identified because the talks are private.

After holding an auction, Park Hill recommended RCP accept an offer from Strategic Partners Fund Solutions, a firm Blackstone acquired last year from Credit Suisse Group AG that buys fund stakes, said the people, who didn’t disclose how Blackstone’s offer compared with the other bidders. A spokesman for RCP said the firm is yet to agree to any sale.

“The transaction suffers from a perception problem,” said David Fann, chief executive officer of TorreyCove Capital Partners LLC, which advises private-equity investors. “Blackstone is on both sides of the trade. The reality is the seller is very sophisticated, and that Blackstone and Park Hill ran a thorough process with many bidders.”

The deal shows how Blackstone risks becoming vulnerable to conflicts of interest as it expands beyond its traditional private-equity funds into advisory and buying stakes in funds from other investors. Tony James, the New York-based firm’s president, told investors this week that managing conflicts between the firms different business lines is a “challenge.”

‘White Space’

“It is a challenge to manage because we have a lot of entrepreneurial, creative, aggressive people and they’re spawning a lot of new businesses,” James said on a conference call yesterday. “They’re great at seeing white space and going for white space, and sometimes a couple of them see the same white space and go for the same white space.” The call wasn’t related to the potential RCP transaction.

A London-based spokesman for Blackstone declined to comment on the deal. The firm’s code of business conduct and ethics, available on its website, states that the firm is strongly committed to avoiding the misuse or appearance of misuse of confidential information.