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.