Blackstone seeks variation of LP capital for next 12 months

The private equity behemoth is actively building channels to access the retail investor market, as 17% of its total capital raised now comes from retail and high-net-worth investors.

Blackstone is focused on diversifying its sources of capital as its assets under management continues to reach fresh record highs, firm management said on its fourth-quarter and yearend earnings call Thursday.

Blackstone chairman and chief executive officer Stephen Schwarzman said his firm is “launching new products” for not only traditional institutions but also family offices and retail high-net-worth investors to invest in the private equity giant’s various products.

“I have great expectations of our ability to continue growing this initiative,” Schwarzman said.

Blackstone chief financial officer Michael Chae added during the call that the retail and high-net-worth assets account for 17 percent, or about $62 billion, of the total assets under management by Blackstone.

“We’re entering the active broker channel with accredited investors that offers less draw downs and more perpetual offerings,” Chae said. “You also have family offices, which make more institutional-type sales. The mix partly depends on which Blackstone funds have an offering in that year, but I think you’ll see a growing number in liquid, perpetual channels as we enter these systems and develop more products.”

He also noted that Blackstone is currently weaving together different existing funds to create such channels, which will increase their presence in the next 12 months.

The executives’ comments come at a time private equity fund managers have been mulling over ways to access rich retail investors and families, the top 10 percent of whom possess as much as an aggregate $42 trillion according to the National Bureau of Economic Research, and specifically the defined-contribution retirement investment portfolios.

Swiss-based Partners Group launched its own private markets fund tailored to the UK defined contributions pensions industry last year. The firm also published a study earlier this month that retirement plans could benefit from adding listed private equity, listed infrastructure and private debt to their portfolios.

During the fourth quarter that ended 31 December, Blackstone reached a record $366.6 billion in assets under management. More than a quarter, or $100.2 billion, of which came from private equity. That private equity AUM figure was a 6 percent year-over-year increase from 2015.

The value of Blackstone’s private equity segment rose 4.5 percent for the fourth quarter, boosted by realisations of $3.8 billion from investment exits.  The $3.2 billion raised also contributed increase of value. The capital raised flowed into funds such as its opportunistic vehicle, Tactical Opportunities Fund II, and the seventh secondaries fund, Strategic Partners VII, according to the firm’s earnings material.

For the year, the private equity segment’s value rose 10.7 percent, according to the earnings material.

Blackstone generated a net income of 55 cents per diluted share in the quarter, up 139 percent from the same quarter of the preceding year. For the year, it generated a net income of $1.56 per diluted share, up 50 percent from 2015.

In 2013, Blackstone itself launched Blackstone Alternative Multi-Strategy Fund, a liquid, daily-marked mutual fund that invests in alternative assets and is accessible to retail investors.

“At the moment, a lot of people are not allowed to put the alternative asset products into retirement vehicles,” Schwarzman said during Thursday’s call. “One of the interesting issues when you have the government is whether it wants to continue that type of prohibition or not, because that’s denying people of better retirement.”

At press time, shares of Blackstone listed on the New York Stock Exchange were priced at $31.25 per unit, up 63 cents or 2 percent from the previous close.