Blackstone, the nation’s largest provider of alternative investments, has quietly established a major presence in the financial advisor space by working with private banks, wirehouses, RIAs and independent brokerage firms. Executives at the firm now estimate that 15 to 20 percent or more of assets flowing into the firm’s various alternative platforms are coming through these sources.
 
Executives at Blackstone see it as a major opportunity. Joan Solotar, senior managing director and head of private wealth solutions at Blackstone, notes that most individual investors’ allocation to alternatives is “in the low single digits.” While this figure is unlikely to ever reach the 25 or 30 percent level that pension funds and other institutions allocate to hedge funds, private equity and other alternatives, there is plenty of room for individuals to get the benefit of a different set of returns.
 
Blackstone management thinks “it is still early in the first inning,” said Solotar, speaking at a press briefing on Thursday.
 
Other Blackstone executives noted that more advisors are looking to diversify after eight years of a bull market dominated by exchange-traded funds and mutual funds where correlations are rising.
 
Blackstone recently announced a $40 billion infrastructure fund and indicated it may ultimately invest as much $100 billion in infrastructure. The Saudi Arabia sovereign wealth fund has already committed $20 billion to this vehicle and Blackstone executives said there will be a retail component.
 
Allowing 401(k) investors to access alternatives is a major passion of Blackstone president and chief operating officer Hamilton James. Given that many defined contribution investors are locking away money they won’t use for decades, just like pension funds, the concept of long-duration investing makes sense on the surface.
 
There are several obstacles, however. Most third-party administrators require daily NAV pricing. One Blackstone executive noted that it may be more than a coincidence that many of these administrators are owned by mutual fund companies. Moreover, there have been a rash of 401(k) lawsuits in recent years and plan sponsors are nervous about outside-the-box strategies.

Blackstone began targeting the private wealth universe five years ago and initially targeted private banks and wirehouses because they are more centralized and have a high proportion of high net worth clients with $5 million or more in investible assets. In the last two years, it has moved more aggressively into the RIA and independent broker-dealer markets.

Executives said they had more capacity to add liquid alternatives for mass-affluent investors. At the same time, however, many ultra-affluent clients in family offices are seeking longer duration private assets to diversify their public equity holdings.

To educate advisors, the firm has created Blackstone University to ed
 
Blackstone executives also said they generally view the U.S. Department of Labor’s fiduciary rule for retirement accounts as a positive development and indicated they preferred to play on a level playing field. “We don’t want to compete against an inferior product with a higher reward for advisors,” one Blackstone executive said.