AIG To Invest $1.35 Billion In The Blackstone Group And Its Funds

American International Group, Inc. (AIG) and The Blackstone Group recently announced the initiation of a long-term investment agreement valued at approximately $1.35 billion. Under the terms of the agreement between the two firms, AIG will acquire a 7 percent limited partnership interest in The Blackstone Group and its affiliated companies for $150 million. In addition to its investment in The Blackstone Group, AIG has agreed to invest over a number of years an estimated $1.2 billion as a limited partner in future private equity, real estate, and other funds The Blackstone Group sponsors.

The formalization of this relationship comes after years of close cooperation between AIG, the global insurance and financial services organization, and Blackstone, the private merchant bank. Hank Greenberg, chairman and CEO of AIG, has served as an advisory director of The Blackstone Group since Blackstone established its first advisory board in 1989.

Commenting on the agreement, Greenberg says, "Through our investments with Blackstone in the past, we have had an opportunity to observe its growth and success for many years. The returns achieved by all the Blackstone funds in which AIG has invested have been at the highest levels in the industry. The disciplined methodology and management processes that underlie this performance record make Blackstone's achievements a standard of excellence in every sector in which they compete. We look forward to working closely with Blackstone in a variety of asset management, advisory and investment activities in the years ahead."

The two firms are also discussing possible cooperation in several areas of joint interest. "AIG is the pre-eminent global insurance organization and a leader in financial services throughout Asia and in many emerging markets," observed Blackstone founders, Chairman Peter G. Peterson and President and CEO Stephen A. Schwarzman. "Through the relationship with AIG it is possible that we will be introduced to new opportunities in various parts of the world."

For example, given the current economic crisis in Asia, where AIG has in-depth expertise on local markets, senior management of both firms believe there may be opportunities to utilize Blackstone's expertise in cross-border Mergers & Acquisitions Advisory and Restructuring & Reorganization Advisory services, where Blackstone is a leader. In the M&A area, Blackstone is among the most experienced advisors on large trans-Pacific transactions as well as an advisor to some of the largest companies in the world. In the restructuring area, Blackstone is the market leader among Wall Street firms and is currently an advisor in such well-known situations as Barney's, Caldor, Dow Corning, and Montgomery Ward.

AIG says its future investments in Blackstone funds will be subject to certain conditions that, on the one hand, assure AIG of certain minimum performance levels and, on the other hand, assure Blackstone of its continued and complete independence as the general partner in funds it sponsors. The agreement limits AIG's participation in funds managed by Blackstone so that such funds can continue to have broadly diversified bases among leading institutional investors.

Blackstone also announced that it had ended its longstanding alliance with The Nikko Securities Co., Ltd. of Japan and redeemed Nikko's $100 million limited partnership interest in Blackstone. In their statement, Peterson and Schwarzman noted, "As a result of the changing financial environment in Japan and the challenges posed by the Tokyo 'Big Bang,' we agree with Nikko's decision to establish a partnership with a diversified, full-service global investment bank. In our view, Nikko's proposed relationship with Travelers/Salomon Smith Barney represents the right course for Nikko, although it precludes a continued partnership with Blackstone. As long-time partners, however, we wish all our colleagues at Nikko, as well as our many friends at Travelers/ Salomon Smith Barney, much success in their new arrangement."