Alt Investments
Shift To Perpetual Capital Widens Alternative Assets Access - Blackstone
The investment house, specialising for years in fields such as alternative assets, private equity, credit and forms of real estate for example, is expanding its footprint. And it has talked about the "perpetual" fund structure.
Change is coming for private market investing in terms of how
mass-affluent and high net worth individuals can secure a piece
of the action, investments titan Blackstone says.
A word investors will hear more about is “perpetual” – a term
describing a structure of funds that doesn’t come with the
drawdowns, capital calls, exit deadlines and other traditional
features of private market entities. These “perps” don’t carry
the kind of liquidity constraints that might be a problem for
investors in more established fund structures, the firm said in a
briefing to journalists in London.
One of the world’s largest players in fields such as private
equity, credit, real estate and other non-traditional areas,
Blackstone speaks with the force of a business which oversaw
a total of $730.7 billion at the end of September, a figure that
rose by 25 per cent from a year ago. Having recently opened
offices in Zurich and Paris, it has widened its footprint.
Within the $730.7 billion AuM figure, $166 billion is in the
private wealth segment of Blackstone.
More than a quarter of Blackstone's fee-earning assets under
management are perpetual (as at the end of 2020). And, in this
week’s briefing, Joan Solotar, global head of private wealth
solutions, said that the shift to perpetual structures was a “big
change in fundraising."
Once a distribution partner on-boards a perpetual fund it can sit
on that platform, so the relationship managers can continue to
allocate to the fund, either for current clients who want to
invest more or for additional clients, Solotar
said.
Blackstone’s offerings of unlisted Real Estate Investment Trusts
(REITs) and private credit, for example, have perpetual
structures. Given the return characteristics of these asset
classes, they’re attractive in times of concerns about inflation
and interest rates, she said.
The Blackstone Real Estate Income Trust, the group's retail
investor-themed non-traded REIT, for example, chalked up net
internal rates of return of 9 per cent through the first quarter,
up from 6 per cent, a year ago (source: PERE, 27 April
2021).
On liquidity, Blackstone’s perpetual fund allows 2 per cent to a
maximum of 5 per cent of the fund’s value to be liquidated per
quarter.
Subject to terms, individual fundholders can redeem all of their
holdings. And these are well suited to the mass-affluent segment,
with minimum investment ticket sizes of $25,000 – way below the
much larger minimums that private equity, credit and other
non-public funds often ask for. “Perpetual funds are fully
invested…there are no capital calls or a 'cash drag,’” Solotar
said. With conventional fixed income offering meagre/zero
returns, the type of funds Blackstone is offering are filling the
space for people seeking to match liabilities and achieve
yield.
“This is a real change in how people will access alternative
funds,” she said. The change will not just be a temporary feature
of the business cycle but part of a more deep-seated structural
change, she said.
The change also comes as questions have to be asked as to why
long-term savers across the wealth spectrum should want
daily liquidity for 100 per cent of their assets, Solotar
added.
Stress and sectors
When Solotar was asked to describe the type of business sectors
that appeal to her investment colleagues, she gave examples such
as e-commerce and firms benefiting from the digitalisation
trend.
“The firm has repositioned our portfolio to a rising rate
environment to more growth-orientated companies….they tend to
have less leverage and have [good] top-line potential,” she said.
In setting up the private markets funds, Solotar said that
Blackstone assumes a possible higher interest rate
environment.
Given how local regulators are trying to widen investor access
outside traditional assets, Solotar said that one of the “most
exciting” markets is Japan. Hong Kong and Singapore are also
important sources of inflows into its funds, she added.