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America’s latest educational movement centres on an unusual subject for students: private assets. At remote learning portals Apollo Academy, KKR Academy and Blackstone University the pupils are investment advisers with wealthy clients who might be a target for newfangled asset management products.
Retail-oriented private asset funds are no longer nascent. This week, Blackstone announced that its latest retail product, BXPE, had initially raised more than $1bn. It is a significant milestone for a vehicle that might be a difficult fit for ordinary, if affluent, Joes.
Blackstone’s previous retail hits in real estate and corporate loans collected either rent or interest payments. As such, they paid healthy distributions that compensated for their limited liquidity. BXPE will make equity investments in leveraged buyouts and the like. Here payouts are more erratic. While the overall returns upside is greater, so is the requirement for patience.
Retail patience has become a crucial topic. BREIT, Blackstone’s hyped retail property fund, had to restrict investors from cashing out shares for several quarters, per the limits of its investment agreement. Private assets offer higher returns in part because fund managers need the benefit of more permanent capital that cannot easily flee during the deployment phase.
Blackstone’s flagship private equity and related funds have deployed hundreds of billions of dollars since its 1980s founding. According to its disclosures, total net annualised returns have been in the mid-teens. That is well ahead of the S&P 500 — although if an investor used private equity-style leverage to buy an index that differential would narrow substantially.
For BXPE, Blackstone is taking 12.5 per cent of the profits along with a management fee of 1.25 per cent — somewhat less than the traditional “2 and 20” structure. There are separate potential fees that the investment adviser intermediary may take as well.
Retail investors are the final frontier for the likes of Blackstone. Traditional pensions and endowments have broadly been tapped at scale. More recently, these pools of capital have even pulled back their commitments amid the drought in initial public offerings and M&A.
Before Blackstone gave individual investors BXPE, BCRED and BREIT, it pioneered another product: its own shares. It debuted in a 2007 IPO priced at $31 a share and now trades at slightly more than $120. It has paid $33 a share in total dividends, all with virtually no leverage at the asset manager level. That adds up to an annualised return of about 13 per cent. It is accompanied by the opportunity to buy or sell Blackstone stock at any time. For retail investors, that is a lesson worth pondering.
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