Blackstone Solves Retail Riddle, Maybe

Chidem Kurdas

Dreams of selling alternative investments to the mass market go back ten years or more. Those hopes were not realized and retail hedge funds remained small. Until now.

Blackstone Group, which started planning its foray into the mass market three years ago according to chief executive Stephen Schwarzman, has had some success. Its exchange-traded credit fund gathered around $530 million in a few months.

A multi-manager mutual fund launched in August received $1 billion, but that is the result of Blackstone’s arrangement with Fidelity, which allocated clients’ money. Will the alternatives leader attract substantial assets to retail products without a big intermediary like Fidelity? Or will it find other such intermediaries? The marketing strategy remains to be seen.

Meanwhile Blackstone is a magnet for institutional investors, in particular pensions. Its fund of funds is highly unusual in continuing to grow—while the rest of the fund of funds segment shrinks.

If this really is the beginning of large-scale move by the firm into the mass market, Blackstone will be almost unique – a term Mr. Schwarzman used in other contexts – in appealing to both retail and institutional investors.

I’ve compared Blackstone to Goldman Sachs and BlackRock, and the retail presence brings it closer to those businesses. But its specialization in private equity, hedge funds, and real estate is distinctive.

Ironically that uniqueness probably accounts for the under-valuation of the public company’s shares. Blackstone is unusual enough that it does not fit into stock buyers’ pigeon holes. The pensions and foundations that happily invest in Blackstone’s private funds do not buy its public shares. Neither do big mutual funds, which all tend to hold the same conventional names.

Mass market success may not change that, though individual investors will become more familiar with Blackstone and possibly more comfortable with its public stock.



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