China acquires $3 billion stake in Blackstone

(Update: This just in: Texas Pacific Group and Goldman Sachs’ private equity arm have agreed to acquire Alltel, the wireless phone company, for $27.5 billion, the largest telecom buyout ever. There’s a frenzy of activity in the private equity world, and we’re likely seeing its peak.)

This isn’t a venture capital story, but is significant because it is an unprecedented commitment by China to a U.S. investment firm — and suggests more Chinese money may be flowing our way, possibly to VC firms.

The Chinese government said it would acquire a $3 billion stake in the Blackstone Group, the private equity firm, as party of China’s efforts to diversify its $1.2 trillion in foreign-exchange reserves beyond United States Treasury bills. The New York Times has the story:

Blackstone’s leader, Stephen Schwarzman, called the Chinese move “huge.”

The deal, which is set to coincide with Blackstone’s $4 billion initial public offering this year, will give China a roughly 8 percent stake in Blackstone, which owns companies that have 375,000 employees and $83 billion in annual sales.

It would also represent a watershed for the booming private equity industry as it tries to gain a foothold in China. “It’s a historic change. It’s a paradigm shift in global capital flows,” said Schwarzman.”

Typically, large organizations such as pension funds like to invest in private equity firms because it lets them put lots of money to work. China is no different, in wanting a way to park its vast reserves. Pensions also invest in venture capital, but typically do so through intermediaries such as funds-of-funds, where capital can be invested in several VC firms at once. Look for China to consider doing the same.