The $1.6B in equity needed for the Gates purchase is more than even Blackstone wants to commit to a single deal, and - after a partnering deal with TPG fell through - Blackstone is canvassing fund investors to help pay. Club deals were popular amid the pre-crisis buyout boom, but have fallen out of favor since.
At issue are the returns from investing in these vehicles. A study of 600 buyouts over a 3-decade span found they delivered an IRR of 16.5% - not too shabby. However, by introducing adverse selection - i.e., the chance investors might pass on or might not get invited into the tastiest deals - the return drops to less than 1%.