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Blackstone and other large private equity firms look to the broad retail market


Private equity firms have spent decades raising mammoth sums from pension funds and other large institutions. Now they cater to a different type of investor: everyday millionaires.

Behind this effort is the recognition that institutions, which committed nearly $1.3 trillion to private markets in 2021, according to PitchBook, have nearly had their fill. Historically low interest rates since the 2007-2009 financial crisis have led many people to swap parts of their stock and government bond portfolios for higher yielding investments in private equity, real estate, infrastructure and credit.

This change is now largely complete. Pension funds and sovereign wealth funds held an average of 26% and 35%, respectively, of their portfolios in these asset classes at the end of the year, according to Preqin. Some are even cutting their private equity allocations after the recent decline in public markets left them overexposed.

So, private equity firms are now looking for another potentially even bigger opportunity involving the so-called mass rich. According to a 2021 report by consultancy Capgemini SE, people worth $1 million or more held $79.6 trillion in investable assets worldwide in 2020..

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And private equity firms estimate that less than 5% of that is currently invested with them.

Unlike the typical buyout fund, products for individuals are perpetual or evergreen, meaning the capital is never fully repaid. This has made them particularly attractive to publicly traded private equity firms whose shareholders appreciate the steady growth in management fees.

The result was a scramble to win over the rich.

“It’s a land grab,” said Matt Brown, chief executive of CAIS, a platform that gives independent financial advisers access to so-called alternative investment products. “You’re seeing the mutual fund 2.0 boom,” he said, referring to the rise in popularity of mutual funds during the 1990s.

There is no guarantee that the effort will succeed. On the one hand, it depends on maintaining investor confidence, which could be shaken by recent market instability, adding to the appeal of liquid assets that are perceived as less risky. The companies say the current environment will demonstrate long-term stability for their products.

While institutions can choose from thousands of private equity funds, many companies are betting that advisers to the wealthy won’t want to evaluate a long list of products. They argue that acting fast and spending big now will give them a lasting advantage over their rivals.

Blackstone, the industry giant that launched its first retail perpetual vehicle in early 2017 – a lower-cost, non-traded real estate investment trust – now draws nearly a quarter of its $915 billion in assets of private wealth. The company has since added two more funds targeting individuals: an unlisted business development company and a European-focused real estate vehicle.

Blackstone, which expects to reach $1 trillion in assets this year, said in April it was receiving $4-5 billion in monthly inflows from the three products combined.

“Our big insight has been to reduce fees and bring the quality of our investment performance to this space,” said Blackstone Chairman Jonathan Gray.

The company has built a team of 278 people, many of whom train advisors on its products and customer services. In May, Blackstone filed with the Securities and Exchange Commission to launch a fourth fund, designed to give retail investors access to its private equity business, which would give them a share of buyouts for the first time. borrowing from large companies whose company is famous. for.

“It’s not lost on channel partners – who are approached by everyone under the sun – that competitors have seen Blackstone’s success and are jumping on the bandwagon,” said Joan Solotar, global head of solutions for company asset management.


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Jose A. Alvarado Jr. for The Wall Street Journal

Although much smaller than Blackstone, Blue Owl was also one of the first to cater to individuals, starting in 2016. The company recently said it received an average of around $700 million per month in April and May of its two evergreen credit funds.

Others are trying to catch up. Shortly after becoming chief executive of Apollo last year, Marc Rowan made expanding the firm’s private banking business a top strategic priority. Apollo now has three products and 145 people dedicated to the effort, thanks in part to its December deal to buy the U.S. wealth distribution and asset management businesses of Griffin Capital Co.

Apollo said in April it got more than 10% of its asset management fundraising from private wealth in the first quarter and announced plans to introduce one to two new products each quarter over the 18-24 following months. Mr Rowan said 50% of a client’s portfolio could one day be invested in alternatives to listed stocks and bonds.

New products in development tap into Apollo’s traditional investment strengths, such as credit, said Stephanie Drescher, the company’s chief client and product development officer, who oversees the effort.

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Ares launched a new product for individual investors in April and filed another. The company said it raised $2 billion from high net worth individuals in the first quarter and said it had 105 employees dedicated to the effort.

Blackstone is confident in its first-mover advantage, said Joan Solotar, the firm’s global head of private wealth management solutions.

“It’s not lost on channel partners – who are approached by everyone under the sun – that competitors have seen Blackstone’s success and are jumping on the bandwagon,” she said.

Write to Miriam Gottfried at Miriam.Gottfried@wsj.com

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