Blackstone, Terra Firma dealmakers weigh in on retail access and regulation

Transparency and education are key pillars for individual investor access to private equity, a panel has heard.

Dealmakers in Europe welcomed democratising access to private markets and a new wave of regulation at a private markets conference in London this week.

LSE Alternative Investments Conference
Blackstone’s Nadim El Gabbani (first right): we strive to operate at the highest level in terms of disclosure and alignment with our investors

“An interesting trend in the capital-raising story is the rise of vehicles focused on individual investors. That will be a trend that will be here to stay over time and ultimately one that promises to offer the returns of alternatives to folks within regular brokerage accounts,” Nadim El Gabbani, senior managing director at Blackstone, said during a panel at the London School of Economics Alternative Investments Conference on Monday.

He added: “When you think about your average retirement account where you’re forced to hold a combination of liquid assets – whether they are funds or individual names – we’ve effectively forced large portions of the self-directed market to be in highly liquid assets when their need for those assets isn’t an immediate need. They are saving for retirement that might happen 20 years from now.

“The idea that you should force them into products that can be bought or sold at any time when they don’t need to do that is actually not an obvious one. And so, in some ways, certainly a portion of self-directed investment should be allocated to alternatives. We’re obviously trying to find ways to do that and distribute it efficiently.”

Asked about the pitfalls of allowing retail access to private equity, Mark Corbidge, a managing director at Sun European Partners, noted he didn’t see any – with the proviso that individual investors are given clear and transparent information on the investment structures.

“As long as you educate people on the fact that this is not a liquid asset that they can decide next year they can pull out of – with the booming secondaries market that’s becoming easy as well to achieve – I don’t see any downside,” Corbidge said. “People can make an informed decision and they are intelligent enough to do so.”

Vivek Ahuja, chief executive of Terra Firma Capital Partners, agreed that transparency and education are two appropriate pillars, to the extent that the retail investors understand the transparency and quality of information that’s being provided to them and make their decisions on an informed basis.

“There probably isn’t going to be a huge shift in this trend,” Ahuja said. “But it’s certainly an alternative opportunity for capital allocation for retail investors, who are in some way, shape or form being shoehorned into a type of investment availability in the market.”

El Gabbani acknowledged there is a serious need for the longevity and scale of institutional capital. “It’s hard to see a world where that goes away. But I think the democratisation of private markets is probably the most important trend in the industry today,” he said.

Ahuja also noted that as long as firms can continue to prove the model works and generate the returns the investors are looking for through the cycle, there will be an allocation of capital with different pools moving in and out of the sector.

Managers are proactively targeting retail and wealth management investors to further increase their assets under management, EY’s annual Global Private Equity Survey found. Nearly half (46 percent) of private equity firms are looking to increase the amount of capital they get from retail investors and wealth management firms. Blackstone, KKR and Apollo Global Management are some examples.

Panellists also weighed in on the sweeping changes to private funds under new rules proposed by the US Securities and Exchange Commission last week.

Said Corbidge: “When it comes to regulation, it is what it is. You have to go along with what people decide is required. The SEC [has] consistently looked at various areas of private equity and tried to tidy it up; I don’t think any of us here have a major problem with that.”

El Gabbani added: “I can’t speak to the [SEC] rules that came out last week; I think we’re still looking at those. But broadly speaking, we strive to operate at the highest level in terms of disclosure and alignment with our investors. We’ve done it over a course of decades and I can’t imagine that that’s going to change.”

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