With the overall private equity fundraising market depressed, 2024 has started off with some interesting news. According to a Financial Times report, the new Blackstone Private Equity Strategies Fund (BXPE), a vehicle for high-net-worth investors. has already closed at US$1.3 billion.
There are two things I’d like to point out. First is the retail misnomer. A dedicated fund for high-net-worth individuals is hardly retail in the same sense as products for mom and pop investors, as they are presumably more savvy and able to afford larger commitments.
Related to this, I would regard high-net-worth individuals as one of the more appropriate investor groups for private equity. They can afford to allocate to less liquid asset classes and to take risks on less predictable propositions. In principle they should have the business smarts and connections to be value-adding supporters, if the fund managers have the sense to tap their expertise. They also ought to have the individual clout to secure preferential terms from private equity funds, and even to receive plum co-investment opportunities.
That’s a bunch of suppositions rather than certainties. And I’d be very interested to see how they prove out in practice.
The one final point is that, if I were a high-net-worth individual, I would not choose to put my commitments into Blackstone. The world’s biggest alternative asset manager, as it proudly boasts on its website, is operating at the most competitive end of the market where the differential opportunities accessible through private deals are likely to be ground away through relentless scrutiny and competition from other funds.
The classic tendency for profit rates to fall through competition will be at its worst with the big Wall Street private assets firms. Rather, I would look in markets that are less heavily intermediated and commoditised – like Asia – and that firms with genuine differentials and unique access – like Asian firms.
Also, the risk factor summary that Blackstone appends to its introduction to BXPE has some interesting sidelights. Under conflicts of interest, it warns that returns may suffer from, “without limitation, the allocation of investment opportunities, relationships with Blackstone’s and its affiliates’ investment banking and advisory clients, and the diverse interests of BXPE’s investor group. There can be no assurance that Blackstone will identify, mitigate, or resolve all conflicts of interest in a manner that is favourable to BXPE”. Given Blackstone’s breadth of interest, I think that’s more than likely.
In practice, I suspect that Blackstone will ensure that wealthy individuals investing in BXPE will receive decent returns. But the best opportunities in opaque private markets are liable to be those least scrutinised – in Asia for example. And those most able to access them are liable to be those with connections and personal clout.
In other words, if high-net-worth investors are serious about getting good returns from private assets, why not do it themselves?
