Blue Owl co-founder warns of pitfalls in tapping retail investors

Retail investors want to be in alternatives for the same experience as institutional investors and should not be pushed on products, said Marc Lipschultz.

The co-founder of Blue Owl Capital has warned that tapping the retail market will not be without pitfalls, a conference has heard.

Marc Lipschultz, Blue Owl Capital, iConnections Global Alts '22
Lipschultz: retail investors want the same experience of improved returns for reduced risk

“Democratisation is a wonderful, powerful tool because the fact of the matter is alternatives have been part of the way institutions have meaningfully outperformed over the last couple of decades,” Marc Lipschultz, co-founder and co-president of Blue Owl, said during the iConnections Global Alts ’22 conference last week.

“But the underbelly is people just saying: ‘Look, here’s my product that you can take and it’s really a new product’. But it’s not really the same experience.

“I think we’re going to have some unpleasant results in terms of the investment experience, the apparatus and infrastructure it takes,” Lipschultz said.

He added: “Everyone’s talking about retail, but retail isn’t just something you flip a switch and say, ‘Great, I want to sell my product’. Getting the product packaged right and delivering that institutional quality experience is most important.”

Blue Owl, which was formed in May through the merger of direct lender Owl Rock Capital Group and Dyal Capital Partners via a special purpose acquisition vehicle, has more than 50 staff supporting retail investors, Lipschultz said.

“This isn’t something to do with one person. This is a lot of people that need a lot of information and support.”

While it will be a “great, large trend for the next 20 years and great for investors. It won’t be without its pitfalls”, he said.

Lipschultz highlighted that retail investors want to be in alternatives for the same experience as institutional investors: improved returns for reduced risk.

“The retail investor doesn’t want nor need nor frankly should [be] pushed on products that are really the retail version of a branded product from an institutional provider.”

Private is the New Public: Private Market Portfolio Disruption, iConnections
Kalichstein (third from left): brand awareness and delivery mechanisms are important for retail investors

Avi Kalichstein, chief executive and co-founder of GP stakes firm Hunter Point Capital, meanwhile, noted the industry still needs to refine the investment structure in which individual investors can participate.

“The mechanism by which we deliver the solutions… is complicated. Particularly for firms the size of Blue Owl or our firm or Tikehau, the brand awareness is not… the same as it is for a Blackstone or firms that have been around for 40 years,” Kalichstein said during the panel.

“I think that delivery mechanism is going to play more and more of an important role.”

Tikehau Capital co-founder Mathieu Chabran added that, compared with the rest of the West, Europe has historically lagged in terms of providing retail investors access to private markets.

He likened it to shadow banking, which has increasingly gotten more institutionalised and proved a “legitimate alternative for people to deploy”.

“Not everyone is a high-net-worth individual, so we use insurance… We’re trying to find ways and [make use of] the tools available, and you see that there is tremendous demand,” Chabran said.

Tikehau set up its first European Long-Term Investment Fund in 2020, to be offered to clients of Spanish private bank Banca March. Capital raised from the vehicle will invest in businesses backing the shift from oil and gas to renewable energy sources.

Nearly half of private equity firms are looking to increase the amount of capital they get from retail investors and wealth management firms, according to EY’s latest Global Private Equity Survey.