The Blackstone Group has been quietly building up its ability to tap into a huge potential pool of capital: retail investors.
While keeping its plans to access retail capital “under the radar”, firm president Tony James confirmed that Blackstone has developed products to serve this part of the investment market, including a business development company, an ETF product and a separate accounts business that counts retail investors as clients.
“Every single one of our businesses has at least one, [and some have multiple ways] they’re accessing retail investors,” James said during the firm’s first quarter earnings call last week. He noted some of the products include special purpose entities set up to distribute LP interests in the firm’s main funds, publicly traded vehicles like ETFs and even closed-end funds and mortgage REITS.
If you take high net worth individuals, there are huge amounts of capital there and it's way under-represented in alternatives.
“If you take high net worth individuals, there are huge amounts of capital there, and it’s way under-represented in alternatives,” James said. “Generally speaking, where institutions have 10 to 20 percent in alternatives, wealthy individuals who can afford the risk, the illiquidity and need the returns, typically are 1 to 2 percent in alternatives.”
Blackstone earlier this month announced it was launching a senior loan exchange traded fund in partnership with State Street. Called the SPDR Blackstone/GSO Senior Loan ETF, the product has an annual fee of .90 percent and began trading on the NYSE Arca earlier this month. The ETF is managed by State Street Global Advisors and Blackstone’s debt affiliate GSO Capital Partners.
“Some ETFs are tens of billions of dollars … it could be big, particularly in a yield hungry market,” James said during the call.
Other publicly listed, multi-strategy shops are chasing the retail segment as well to broaden their investor universe and expand and diversify fee streams to appease public shareholders. Kohlberg Kravis Roberts launched two debt funds last year open to retail investors, while The Carlyle Group will welcome investors into its funds for minimum investments as low as $50,000 (through a feeder vehicle run by wealth advisor Central Park Group.)
Regulatory scrutiny increases with exposure to retail investors, and the firm has worked hard to keep up to date on the latest thinking in Washington, DC. However, the current state of the US Congress is so antagonistic that it’s hard to know what proposals are going to become law, said Blackstone chief executive officer Steve Schwarzman.
“It’s hard to imagine when 90 percent of Americans are in favour of some type of background checks [to purchase guns], you can’t even get a vote on it,” he said.