Blackstone Group LP, the world's largest private-equity firm, istaking aim at the $5.4 trillion of cash on corporate balance sheetsin the U.S. and Europe as regulators weigh changes that may reducethe appeal of money-market funds.

The firm has started a money-management unit called BlackstoneTreasury Solutions Advisors LLC that will cater exclusively tocorporations. Its portfolio managers include Blackstone ChiefFinancial Officer Laurence Tosi and Treasurer Matthew Skurbe, whohelp run New York-based Blackstone's internal cash managementstrategy.

Blackstone is targeting company treasurers as the U.S. considersrequiring money funds to shift from stable share prices to floatingvaluations. For Blackstone, providing cash management forcorporations would help diversify income streams further, afterChief Executive Officer Stephen Schwarzman added real estate, hedgefunds, and credit vehicles to reduce reliance on leveragedbuyouts.

“It could be a highly profitable activity for Blackstone,” saidAnthony Carfang, a partner at Treasury Strategies Inc., aChicago-based treasury consulting firm. “The investment managementbusiness is highly scalable.”

Peter Rose, a Blackstone spokesman, declined to comment onTreasury Solutions. The parent company incorporated themoney-management unit along with the Blackstone Treasury SolutionsMaster Fund LP in March and the registration took effect in April,public records show.

Floating Value

Corporate treasurers rely on money-market funds to manage cashbecause the funds maintain a fixed $1 share price. That couldchange as U.S. regulators, seeking to avoid a repeat bailout of the$2.56 trillion industry after the 2008 collapse of the ReservePrimary Fund, evaluate requiring managers that invest in corporatedebt to let their share prices fluctuate.

“The money-market funds no longer being booked at net assetvalue would be a significant issue for corporations,” said MichaelGannon, the former treasurer and chief planning officer for MolsonCoors Brewing Co. in Denver. “It would certainly be a reason thattreasurers might look at alternatives.”

Without a stable share price, treasurers may be spurred to seekalternative ways to invest their cash that provide added yieldwithout a big increase in risk. Tosi and Skurbe, who came toBlackstone from Merrill Lynch & Co., according to theinvestment advisory registration with the U.S. Securities andExchange Commission, currently help invest some $1.3 billionBlackstone cash in assets ranging from mortgages to hedge funds toeke out extra yield.

Defined Contribution

Large bond managers such as Pacific Investment Management Co.,based in Newport Beach, California, and BlackRock Inc. of New Yorkalso have funds investing in shorter-dated securities. Banks suchas Wells Fargo & Co. and JPMorgan Chase & Co. offertreasurers a suite of services for daily cash management, includingInternet portals that allow them to choose among money-market fundsin which to deposit excess cash, Gannon said.

Offering corporate money management may also help Blackstonemaintain relationships with companies whose pension plans decide toreduce their investment in private equity, said Eileen Neill, amanaging director in the consulting division of Wilshire AssociatesInc., a Santa Monica, California-based financial advisory firm.Corporate pension plans have been moving into bonds as part of aneffort to reduce the impact of market swings on their financialstatements, she said.

“This has everything to do with the fact that corporatedefined-benefit plans in the U.S. are meaningfully reducing theirexposure to riskier assets,” Neill said in a telephoneinterview.

Initial Investment

A cash-management product may even help Blackstone gain accessto corporate 401(k)s, also known as defined contribution plans,according to Neill.

“Right now, private equity is completely shut out of thedefined-contribution industry because they don't offer dailyliquidity,” she said.

The treasury solutions group will be part of Blackstone AdvisoryPartners LP, a unit that provides advice on corporaterestructurings and mergers and helps outside private-equity andhedge funds raise money, according to the brochure. Blackstonerecently modified the license of advisory partners to permit it toprovide capital markets services, such as underwriting stock andbond sales, the parent company said in its annual report.

'Conservatively Managed'

Blackstone Treasury Solutions plans to charge both managementand performance fees, the filing shows, and the unit will require aminimum initial commitment of $50 million. It will have the leewayto invest in a range of fixed-income products, according to theregistration, including mortgages, asset-backed securities,leveraged loans, managed futures, and interest rate contracts. Itwill also invest in both Blackstone and third-party hedgefunds.

The SEC filing doesn't specify how corporations would investwith the unit, or spell out whether clients would be able towithdraw their money daily or face waiting periods.

The three portfolio managers for the Treasury Solutions fundsare Tosi, Skurbe, and Joseph Rocco, a vice president who isinvolved in credit and risk management for Blackstone's treasuryoperations. Their internal treasury cash-management strategiesgenerated $25.8 million of income and $8.6 million of capital gainsduring 2012, according to the annual report. Assuming the capitalgains aren't part of investment income, the strategy would havegenerated a total return of 3.3 percent on average assets of $1.05billion for the year.

“They do actively manage that to get a little bit of incrementalyield,” said Meghan Neenan, a senior director at Fitch Ratings Ltd.in New York. “But it is all fairly conservatively managed and veryliquid.”

Generating Income

Corporate treasurers generally forecast future cash needs andthen invest accordingly, said Carfang at Treasury Strategies. Cashto run the business is typically kept in money-market funds or bankaccounts, with reserves placed in investments that mature in 90 to100 days. The remainder can be invested in longer-dated securitiesthat provide higher yields.

U.S. corporate cash increased to $1.79 trillion at the end oflast year from $1 trillion in 2000, according to an April 4 reportby Treasury Strategies. Corporate cash totaled 1.93 trillion euros($2.53 trillion) in countries that use that currency as of Dec. 31,and the comparable U.K. figure stood at 730 billion pounds ($1.13trillion). With the U.S. Federal Reserve keeping interest ratesnear record lows, treasurers are challenged to generate income fromtheir excess cash.

'No Yield'

After coming under pressure from hedge-fund manager DavidEinhorn, Apple Inc. said last month that it would seek to return anadditional $55 billion to stockholders through dividends and sharerepurchases. Apple earned a 2.3 percent return, includingdividends, interest, and capital gains, on the average cash andsecurities of $101.4 billion held on its balance sheet during thefiscal year ended Sept. 29, 2012, according to the company's mostrecent annual report.

“Corporations have so much cash on their balance sheets, andtreasurers are saying there is no yield to be gotten anywhere,”said Gannon, a director at the National Association of CorporateTreasurers.

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