Blackstone's private wealth management solutions group recently explained developments at the firm in the EMEA region, and continuing developments such as the perpetual or "evergreen" funds model.

Private equity and other alternative portfolios, such as the “perpetual” structures used by Blackstone, have been particularly well suited to volatile times when conventional listed stocks and bonds have tanked, the US-based firm says.

So far this year, equities, government bonds and most corporate debt have fallen amid rising inflation, interest rates and the worries that a recession is coming. But, in contrast, private markets' investments, and some hedge fund strategies, such as macro strategies, have fared relatively well. 

Even so, affluent private investors typically allocate only about 5 per cent to alternative investments although institutions can put up to 20 per cent or more of all portfolios into the space. 

“Investors remain under-allocated,” Joan Solotar, global head of private wealth solutions at Blackstone told journalists at a briefing in London recently. Solotar is responsible for more than $236 billion in AuM. In total, New York-listed Blackstone oversees more than $951 billion in AuM. (Blackstone recently issued quarterly results data.)

“Many advisors have found that if they hadn’t allocated to alternatives, then they underperformed,” Solotar said. Some advisors, such as those working for decades without ever having broached the alternatives space, might lack the confidence to take the plunge, she said.

At the same briefing, her colleague, Rashmi Madan, head of EMEA for Private Wealth Solutions – London, spoke of the historical difficulties that HNW individuals have had in accessing drawdown funds when high minimum investments often require at least $1 million. This and administratively burdensome tasks have put investors off the area. 

In recent years there has been a shift towards private markets at the expense of public markets, driven by a variety of forces. “That secular change has continued and I expect it will continue,” she said. “We’re very bullish for the outlook for our business.”

When asked about the economic outlook and likely financial market impact, Solotar said she did not expect “anything remotely close to the [2008] financial crash.”

Brexit and European expansion
Since Brexit, Blackstone PWS has set up a French office and has added people to its EMEA team in Zurich, Milan and Frankfurt.

Much of Solotar's work, and that of her colleagues, involves training and educating advisors and relationship managers on the benefits of private market exposure within the context of a portfolio and Blackstone’s offering.

For example, Solotar spoke about the firm’s perpetual, controlled-liquidity funds. These are funds which do not require capital calls or other traditional features of private market entities. 

Unlike traditional private market funds, these “perps” are evergreen open-ended funds that offer monthly or quarterly liquidity subject to caps. Advisors particularly like clients' ability to invest monthly rather than commit episodically based on private market fund closings – making the process smoother and more predictable, she said.

The perpetual structures are constructed to provide liquidity – subject to a cap of 5 per cent a quarter or 20 per cent a year of the fund NAV. These caps shouldn’t be conflated with the kind of “gates” that hedge funds investing in liquid assets, for example, have imposed in the past when market liquidity vanished, she said.

“You have to control liquidity by limiting it… you have undrawn lines of credit and a liquidity sleeve…the funds have these in place because they don’t want to be in a position to sell an asset at the wrong time,” she said.

Blackstone is reportedly working on a semi-liquid structure which would also bring private equity investments to a retail audience. The firm has been working towards this goal for more than four years.

An attractive quality of perpetual funds is that money is invested immediately, avoiding “cash drag” and the need for capital calls, Solotar said.