Jonathan Gray: ‘It’s hard to replicate Blackstone’

A shift among LPs to direct investment is ‘more complementary’ than it is damaging, the president and COO said.

Limited partners’ desire to increase direct investment is not having a negative impact on Blackstone’s fundraising, according to president and chief operating officer Jonathan Gray.

Speaking at the Deutsche Bank 2018 Global Financial Services Conference in New York on Wednesday, Gray said the costs and challenges of setting up a successful direct investment programme mean the practice is not widespread.

“To build your own investment organisation is very expensive, so the folks who can really do active direct programmes have to be quite large in scale,” he said. “We’re talking about not a huge number of institutions, maybe very large state pension funds, and mostly sovereign wealth funds.”

What’s more, these large pools “will identify that it’s hard to replicate something like Blackstone, having a couple of thousand people around the world who are deploying capital, finding opportunities, portfolio operations”.

“I think one of the reasons why we outperform in such a meaningful way is what we do to the businesses we acquire, the assets we acquire,” Gray said. “Having that whole set-up soup to nuts to do transactions, to do equity offerings, that’s hard to do.”

The result is large-scale institutions “are still making large commitments to Blackstone”, but are increasingly seeking significant opportunities to co-invest alongside the firm.

“It’s actually turned out to be more complementary than you’d expect,” he said. “It has not turned into what you may have anticipated five or 10 years ago.”

Earlier this month the California Public Employees’ Retirement System, the US’s largest public pension fund, announced plans to launch a direct private equity programme. CalPERS Direct will comprise two funds: one focusing on late-stage investments in technology, life sciences and healthcare, and the other on long-term investments in established companies, according to a statement.

The programme is scheduled to launch in the first half of next year, pending final review and approval by its board.

Gray said in the last three years alone Blackstone has raised $260 billion on the back of strong performance and an ever-expanding raft of investment products.

“In the old days [fundraising] was much more episodic because we had a much smaller number of funds which drove fundraising, but now we’ve got a whole range of activities,” he said. “I think we continually surprise people by the amount of capital we’re raising.”

Blackstone’s fundraising has also benefited from LPs rationalising their manager relationships, seeking to deploy more capital with fewer, best-in-class managers.

“As long as we stay focused and disciplined on investing and delivering great performance, I think our ability to raise capital will continue to surprise people.”