• Fund's assets have fallen to $631 million from $1.2 billion
  • Fidelity invested almost $1 billion in the fund in 2013

A Blackstone Group LP mutual fund that allocates money to hedge funds lost almost half of its assets this month as the fund’s biggest backer, Fidelity Investments, slashed its stake.

Clients withdrew $585.5 million from the Blackstone Alternative Multi-Manager Fund in the first three weeks of this month, leaving it with $631.2 million in assets, down from $1.2 billion at the end of February, according to data from Morningstar Inc. The decline reflects a large redemption by Fidelity, which had put almost $1 billion into the fund in 2013, according to a person familiar with the matter, who asked not to be identified.

Fidelity allocated client money to the Blackstone fund through its Portfolio Advisory Service, which manages assets on behalf of wealthy clients. Alternative investment firms including Blackstone, Carlyle Group LP, KKR & Co. and Apollo Global Management LLC have sought to attract more individual investors through such funds to broaden their client bases. Some have been forced to shut down offerings after failing to attract assets.

"While we may use alternative strategies to enhance our clients’ portfolios, our investment philosophy remains focused on strategic allocation across traditional asset classes," said Nicole Goodnow, a spokeswoman for Fidelity. "Fidelity currently maintains an alternatives exposure within its managed account portfolios."

Christine Anderson, a spokeswoman at Blackstone, declined to comment.

Carlyle, KKR

Fidelity managed $142 billion through its portfolio advisory service as of Jan. 31, said Goodnow. It has discretion over the management of the accounts, which require a minimum investment of $50,000.

The firm last month pulled its investment from another liquid alternative pool, Arden Alternative Strategies Fund, forcing it to liquidate, according to a person with knowledge of the matter. A regulatory filing shows that the Arden fund will be liquidated this month.

The Blackstone fund returned an annualized 3 percent since it was started that year, compared with a 9.8 percent return for the broader stock market. The fund did well last year, returning 4 percent to beat 91 percent of peers, according to data compiled by Bloomberg. It gave up those gains at the start of this year, losing 4.2 percent through March 22.

Carlyle last year decided to shut a pair of mutual funds, which followed a similar move by KKR in 2014 to close down two funds after they received $33 million from outside investors in about a year.

Still, the firms aren’t giving up. Carlyle last year teamed up with TCW Group to offer three vehicles that give ordinary investors access to hedge fund-like bets. KKR, Carlyle and Blackstone have said they will keep creating products for individuals as they aim to eventually break into the market for 401(k) retirement plans.

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