The new titans of Wall Street have their eyes on your savings
- Private equity firms are attracting assets, with Blackstone, the biggest name in the industry, expected to see inflows of $100 billion in 2018 and 2019.
- The bulk of that money is likely to come from big-ticket investors, but Steve Schwarzman, founder and CEO of Blackstone, is also focused on making the firm's investments more accessible to individuals.
- The retail channel, which covers things like private banks and investment advisers, currently make up 18% of Blackstone's assets, but that could go up.
Private equity firms are killing it.
The investment managers, which typically buy up companies in the hope of selling them for a higher prices years down the line, averaged returns of 13.5% before fees between 1998 and 2014, according to a recent study by CEM Benchmarking. That was above every other kind of investor in the same period.
Money typically follows performance, and so investors have been pouring funds into the private equity asset class in recent years.
Nowhere is this more clear than at Blackstone, the largest publicly-traded private equity firm, which said Thursday that assets under management had hit a record high of $387 billion. Credit Suisse analysts led by Craig Craig Siegenthaler are projecting $100 billion in inflows to the firm in 2018 and 2019.
The bulk of that money is likely to come from big-ticket investors, but Steve Schwarzman, CEO of Blackstone, also hinted at a push towards making the firm's investments more accessible.
"The power of the Blackstone brand is perhaps best illustrated in the high level of demand we're seeing for our funds across different subchannels: including the wirehouses and private banks, independent broker dealers, the RIAs [registered investment advisers] and family offices," Schwarzman said Thursday on the company's third-quarter earnings call. "These channels and investors, by and large, have been under-allocated to alternatives within their portfolios, some dramatically."
To benefit from the level of increased interest, the firm now has:
- 12 salespeople focusing on wirehouses (full-service brokerages)
- 10 focused on independent broker dealers
- Sales staff focused on private banks and family offices and multi-family offices.
These channels, typically lumped together as retail, now represent 18% of Blackstone's assets under management, according to Schwarzman. He said the firm had major initiatives underway in this space, but he can't talk about them yet "because sometimes people copy what we do."
Retail covers a lot of ground. There's ultra-high-net-worth ($30 million or above), high-net-worth ($5 million to $30 million), accredited investors ($1 million to $5 million), and mass affluent (anything below $1 million).
"We are optimistic on the retail opportunity for the Alts as the firms expand their focus to include not only ultra-high net worth but also the $1-5M investor range," Siegenthaler at Credit Suisse said.
Blackstone might be the biggest, but it's far from the only private equity fund coming for these retail investors.
Apollo Global Management, a major Blackstone competitor with $231.8 billion in assets, announced a similar push back in August.
"We're investing in the marketing resources we need to attack retail [investors] in multiple ways," Apollo's senior managing director, Josh Harris, said on an earnings call last year. "We've always been great manufacturers of return. Increasingly, we are just now making those products available and suitable for retail, which is different."
A part of the challenge is educating financial advisers on the strategies. Joan Solotar, head of private wealth solutions and at Blackstone, said that 2,500 advisers had come through Blackstone Universities. "We're continuing to educate advisors and really develop a relationship," she said.
"One of the big wirehouses we've been working with for several years, we looked at penetration there and even for those FAs who sell our product were about 20% penetrated," she said "When we look across the entire system, we are 5%. So I think the upside is quite significant."