Blackstone Asset Growth Hopeful

Chidem Kurdas

Blackstone Group’s hedge fund division attracted significant  new capital in the second quarter. This does not mean that other hedge fund firms will also be able to raise money.

On the contrary, investors appear to be persistently moving to the largest firms. Blackstone is now a $111 billion behemoth (counting all assets) & growing. It has  probably become the biggest free-standing alternative investment business.  Plus, Blackstone survived the credit crisis well. Nobody else in the industry is really in the same position.

Nevertheless, this is great news for many hedge fund managers.

Investors put $2.8 billion in Blackstone funds of funds in the second quarter. The net inflow is $1.7 billion. Total fund of funds assets are at $30 billion.

To see how exceptional this is, consider that total flows into the hedge fund industry were negative during the period—a net outflow of $1.8 billion, according to Credit Suisse data. Assets have not come back to the space in a very significant way, says Oliver Schupp, president of Credit Suisse Index Co.

A few big players are past the low point. Blackstone chief executive Stephen Schwarzman said that they believe fund raising has moved beyond its trough, though it remains challenging in certain sectors.

Meanwhile, there is his $30 billion fund of funds kitty. That means a lot of allocations to outside managers. In addition, Blackstone seeds new funds, so more managers will be able to start up with Blackstone’s backing.

Mr. Schwarzman pointed out – at a conference call – that the new financial regulation limiting how much banks can invest in their own hedge funds will encourage people with the skills to migrate to independent companies like his own. Blackstone can give such people seed capital.

All that is good for capable managers. They may not be able to raise a lot of money from direct investors,  but they might get an allocation from the fund of funds.

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Tags: Oliver Schupp, Stephen Schwarzman