Apollo Global Management LLC co-founder Josh Harris isn’t buying Steve Schwarzman’s pitch that individual investors will be significant contributors to private equity.
The opportunity to attract individual clients to investment alternatives to stocks and bonds is smaller than the vision described by competitors, Harris said today at the Morgan Stanley Financials conference in New York. Individual investors tend to enter private-equity, real estate and credit funds in cycles instead of for the long term, said Harris.
“I’ve seen retail come in and out of this asset class at exactly the wrong time for three cycles,” the Apollo co-founder said. “This is about the time that retail floods in right at peak multiples and gets hammered, and then at the first sign of trouble flees.”
Attracting individual investors to their funds has been a selling point for Blackstone Group LP (BX)’s chairman Schwarzman and Carlyle Group LP (CG) co-founder David Rubenstein, who run the world’s two biggest alternative-investment firms with $470 billion in combined assets under management.
Schwarzman in April said individuals should have more access to alternative assets, whose investors are mostly big institutions, and Rubenstein since 2012 has described his vision for accessing 401(k) retirement plans, a $4.2 trillion market.
“We don’t see it as aggressively as they do,” Harris, who co-founded New York-based Apollo in 1990 with Leon Black and Marc Rowan, said without naming the other private-equity firms. “While I do think it will grow sustainably, I think some of what you’re seeing is simply a cycle and it will turn around a bit.”
Private-equity funds under U.S. rules can only be sold to accredited investors, defined as individuals with a net worth of more than $1 million or annual earnings of more than $200,000, or institutions with more than $5 million in assets. The minimum commitment to the largest buyout pools is typically $5 million to $20 million, according to fund agreements.
“We’re going to continue to be disproportionately an institutional platform,” Harris said of Apollo. (APO)
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