Blackstone Unit Courts Wealthy Seen as Best Growth SourceMiles Weiss
Blackstone Group LP’s billionaire co-founder Steve Schwarzman wants individuals to invest in the firm’s funds. Especially if they have at least $10 million to spare.
The world’s biggest manager of alternatives to stocks and bonds has created Blackstone Total Alternatives Solution Advisors LLC to pool money from wealthy families and high-net worth individuals, according to a regulatory filing last month. The new arm is initially seeking clients for a fund of funds that will invest in the New York-based firm’s buyout, real estate, credit and hedge funds.
Schwarzman, whose net worth exceeds $10 billion, regularly bemoans that individual investors don’t allocate more money to alternatives. Private-equity firms including Blackstone, Carlyle Group LP and KKR & Co., which traditionally catered to institutions such as pension plans, are seeking more of the estimated $11 trillion held by the rich at private banks, brokerages and investment-advisory firms in the U.S. and Canada. Private wealth is just 12 percent of the $272 billion that Blackstone oversees.
Blackstone’s research several years ago showed that “the greatest opportunity for us was in the private wealth space,” Brendan Boyle, a senior managing director, said at the firm’s investor conference last month in New York.
The new arm is seeking clients for Blackstone Total Alternatives Solution 2014 LP. It will mostly raise money from high-net-worth individuals and their related vehicles such as family offices and generally require a commitment of at least $10 million, according to the June filing with the U.S. Securities and Exchange Commission. Proposed fees weren’t disclosed.
Peter Rose, a Blackstone spokesman, declined to comment on the firm’s plans.
Private wealth accounted for about $33 billion of Blackstone’s assets as of March. That’s up from $10 billion at the end of 2010, when it was 8 percent of assets, Boyle said in the presentation.
There’s room for much more growth, according to Boyle. The average pension fund has almost 20 percent of its money allocated to alternatives such as buyout and hedge funds and endowments devote 26 percent, while the comparable figure for wealthy investors averages 2 percent to 3 percent, he said.
Blackstone has been meeting with family offices and individuals with as much as $20 billion who have considered investing directly with the firm, according to a transcript of Boyle’s comments. The firm is also partnering with private banks and brokerages that cater to wealthy individuals.
Carlyle, taking a different approach to wooing individuals, last year created a pooled vehicle that employs Central Park Advisers LLC to allocate capital committed by investors to various Carlyle buyout funds. The minimum initial investment for CPG Carlyle Private Equity Fund LLC is $50,000, according to regulatory filings.
Private banks, in turn, are offering the rich fresh ways to invest in alternative assets. Credit Suisse Group AG set up a Direct Equity Partners program that will enable private-banking clients to back individual buyouts, as well as real estate and venture capital transactions, on a deal-by-deal basis, according to a separate SEC filing last month.
Credit Suisse will establish vehicles for each transaction, with the firm and its employees supplying about 5 percent of the capital. This gives clients access to the deal flow that the Zurich-based firm’s investment bank participates in when providing advisory services or helping to raise financing.
Other banks with large private-wealth units, such as Frankfurt-based Deutsche Bank AG, offer similar programs, said Neil Weiner, the senior managing member of Foxhill Capital Partners LLC, a Princeton, New Jersey-based money manager that works with high-net-worth individuals as well as family offices and trusts.
“It’s a way to capture the real high-net-worth guys” who “are sick and tired of being stuck into these massive funds,” Weiner said in a telephone interview. “They get to see one-off deals that come into the banks and they get to pick and choose.”
Suzanne Fleming, a Credit Suisse spokeswoman in New York, declined to comment on the firm’s new offering.
For fund companies such as Blackstone, cash from the well-heeled can also help replace capital from institutions that increasingly want to invest through their own separate accounts rather than traditional pooled funds.
“There is a trend for some of the bigger institutions to be less enamored with commingled funds,” said Conrad Weymann, managing partner at Mallory Capital Group, a Darien, Connecticut-based firm that raises money for private-equity and real estate funds.