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Blackstone to add US$10b in assets with Harvest deal

[NEW YORK] Blackstone Group LP will add US$10 billion in assets by buying energy investor Harvest Fund Advisors, betting that demand for pipelines and facilities will continue to rise despite sluggish energy prices.

Blackstone is acquiring the Wayne, Pennsylvania-based firm for an undisclosed amount of cash and future incentive payouts, Blackstone partner Dwight Scott said in a phone interview Thursday.

Harvest's 18-person team will remain at their headquarters and continue to be led by Eric Conklin, who will report through Blackstone's credit unit.

Led by chief executive officer Steve Schwarzman, Blackstone has primarily built investment capabilities in-house, with some notable exceptions. Its credit unit was created with the transformational purchase of GSO Capital Partners in 2008, and in 2013 Blackstone scooped up Credit Suisse Group AG's business that buys and sells stakes in private equity funds. The firm managed US$371 billion across private equity, real estate, credit and hedge funds as of June 30.

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Harvest, founded in 2005, invests in US midstream assets such as pipelines and export terminals through master limited partnerships. Like real estate investment trusts and business development companies, MLPs pass their federal tax duties on to individual investors, lowering overall rates.

In buying Harvest, Blackstone is betting on increased need to transport, refine and ship oil and gas. The infrastructure assets, which typically have long-term contracts that kick off cash, are in part protected from fluctuating commodity prices, Mr Scott said.

Oil Production

Blackstone, which already invests in energy through its credit platform and private equity funds, saw an acquisition as the best way to add a public equity offering via listed MLPs, said Mr Scott, who was promoted to president of GSO in June.

"The way Eric and his team talk about their business and talk about the businesses they like, it sounds a lot like our team when we talk about the credits we like," Mr Scott said.

At GSO, "we have the ability to point to our experience as a group that came into Blackstone through a similar type of transaction. It was an easy discussion because of that".

Pipeline operators stand to gain as US energy output surges. Crude production is projected to average 9.91 million barrels a day in 2018, up from an expected 9.35 million barrels a day this year, according to the Energy Information Administration. That's led several companies to announce capacity expansions this year, especially in Texas's Permian Basin, which has driven the shale resurgence.

"The value of that pipe in the ground, most often as long as you're in the right areas, isn't decreasing in value - that's increasing in value every day," Harvest's Mr Conklin said in a phone interview.

"We're certainly in the early innings when it comes to pricing the space efficiently."

Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.