Private Equity Pursues Retail Investors

One of the major obstacles facing PE firms trying to attract money from individual investors is the question of liquidity and diversification. Compared to institutions, individuals really like to get their money if they need it. According to the WSJ article, Blackstone has obliged them with a new fund it launched in January, Blackstone Private Equity Strategies (BXPE), which has pulled in some $6 billion so far.

Quarterly redemptions are allowed. But that means the fund needs consistent returns, which means avoiding long accumulations of dry powder. So far, BXPE has approached the problem by taking a wide mix of positions in other Blackstone PE deals, and even deals from outside firms.The fund has made returns of 9.2% through September, but the article reports there have been questions as to whether the strategy’s exposure to outside deals will prove as profitable as the deals from within Blackstone, because the prices the fund is paying for those outside positions seem high.

Blackstone’s expectations for BXPE remain lofty. The firm reportedly believes the fund could grow as large as its individual-based private credit and real estate funds, which have $36 billion and $55 billion in net-asset value, respectively. As PE firms continue efforts to crack the individual market as a source of new AUM growth, expect to see a range of approaches as well as trial and error in response to any strategies that don’t work out as intended.

Reportedly, $12-$13 trillion is sitting in Americans’ 401K plans. Traditionally these funds have been restricted to public investments such as mutual funds or index funds managed by a financial services advisory group like Vanguard.

But many in the private equity industry hope a second Trump administration may change that by allowing holders of tax-deferred 401K retirement plans to access an array of private investments such as leveraged buyouts and private loans. According to this Financial Times piece, private equity lobbyists plan to “hit the ground running” in terms of getting the new administration to consider the rule change.

The traditional view has been that these less regulated spaces were simply too opaque and risky for small investors to safely evaluate and negotiate. But that also denies smaller investors a chance for the more lucrative returns and diversification that private markets offer, something large and institutional investors have been taking advantage of for years. The change would also offer PE firms the chance to tap a huge new pool of investment dollars while potentially kicking off a new round of growth for the space.

Marc Rowan, CEO of asset manager Apollo Global Management, stated the case for the change in terms of diversification: “I jokingly say sometimes, we levered the entire retirement of America to Nvidia’s performance. It just doesn’t seem smart. We’re going to fix this and we are in the process of fixing it.”