Blackstone Group LP, the private-equity behemoth that’s traditionally raised money from institutions, is making a bigger bet on individual investors.
The $450 billion firm has expanded its private wealth group to about 100 employees, trained thousands of financial advisers on how to pitch Blackstone investments and has been using data to track patterns to generate more business, according to people familiar with the matter. The firm is offering retail clients access to hedge fund products, private real estate investment trusts and longer-term drawdown funds, which are typically limited to institutions.
Private equity firms are looking for new growth areas as their longtime investors start to do more deals without them. Blackstone is leading the charge to tap individual clients, who have historically allocated very small amounts to alternative investments. The New York-based firm sees its retail operation as a huge opportunity, president Jon Gray said on a conference call last week.
Joan Solotar, head of the private wealth group, has said about half of the firm’s assets could come from individual investors in the next five to 10 years. In the first quarter, $3.4 billion, or 19 percent of the money Blackstone raised, was from retail clients, Solotar said on a media call last week. A non-traded REIT has already raised more than $2 billion since it was launched last year.
“If anyone is going to do this the right way, it’s Blackstone,” said Paul Auslander, director of financial planning at ProVise Management Group. But products like the unlisted REITs “aren’t going to be the same quality” that the firm would offer institutional clients, he said.
Executives at Blackstone acknowledged this perception exists and that the history of private REITs isn't a pretty one. However, they added that Blackstone created the REIT with the intention of delivering institutional quality real estate to individual investors for the first time and recognized that they would have to deliver superior results with lower feesthan earlier private REIT products to gain the trust and advisors and their clients.
Most retail clients are less familiar with private equity investments and may be wary of having their money locked up for years. The investments also come with fees that are higher than traditional mutual funds. So Blackstone is meeting with groups of financial advisers across the U.S. and is bringing some to its New York office for what it calls “Blackstone University” to help them better understand and market the products.
“It’s a risk that most financial planners are loath to take,” said Auslander. “Between the lock up and the fee structure it’s not what clients are used to.”
The firm is also offering investments that can be cashed out sooner, like a hedge fund that provides liquidity daily, and a floating-rate loan fund with an option to pull money out monthly, said the people familiar.
This article was provided by Bloomberg News.