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Blackstone charts out new investment pathways

The firm’s chief financial officer Michael Chae recently explained the different areas where it is looking to expand, including infrastructure and growth equity.

Alternative asset management firm Blackstone is planning several paths to potential growth in the next few years, including infrastructure, while tapping retail investors and focusing even further on long-term fund structures.

Michael Chae, chief financial officer at Blackstone, said at the Credit Suisse’s 18th Annual Financial Services Forum on Tuesday said the firm was studying initiatives that fall into three buckets: products, channels and structures.

“On the product side, there’s been a lot of talk about infrastructure, and that’s something we’re spending time on,” he said.

Blackstone has invested more than $6 billion of equity in some 35 to 40 infrastructure projects over the years, Chae said. “The performance has been really good and our LPs have been very receptive and encouraging at the prospect of us doing something.”

“Add to that the US public policy dynamic that we’re all reading about, and it’s an interesting space, so we’ll see what happens. If we do pursue it, it’s something we’ll pursue in scale with the intent to be a leader.”
He also cited growth equity as a strategy that Blackstone could pursue.

In terms of growing sources of capital, Chae discussed the opportunity to raise funds from retail investors, which Stephen Schwarzman, thefirm’s chief executive and co-founder, discussed during its fourth-quarter earnings conference call last month.

Chae noted that while retail investors have represented about 20 to 30 percent of total fundraising in the past few years, the channel remains in its early stages of development.

“To date, our retail fundraising mostly has been focused on marketing our products through wire houses to high-net-worth individuals, private management markets, and also third-party distributions of some of our products in BAAM and GSO,” he said, referring to Blackstone’s hedge fund solutions group and to its credit business, respectively.

“Looking forward, we’re sort of going to the next stage of development and efforts in this area, in channels like the broker-dealer space, the RIA space. We think those are very large addressable markets for our products.”

The third general area of growth in addition to products and channels focuses on innovative fund structures, in particular expanding long-term vehicles that can generate permanent revenue.

Long-term capital like Blackstone’s core-plus real estate fund can generate performance fees on a recurring basis without having to exit assets and can, in turn, boost distributable earnings to unit holders. “That will have a powerful effect over time,” he said, and Blackstone is looking to make greater use of such vehicles.

In terms of fundraising, Chae acknowledged that 2017 will be a more subdued year than the two prior ones. Blackstone raised $94 billion in 2015 and $70 billion in 2016, mainly driven by real estate and private equity flagship funds being raised.

“We won’t have those large flagship funds in the next couple of years, but there’s a very diverse and large palette of funds that will be out in the market, whether it’s our third Tactical Opportunity vehicle, our second Asian real estate vehicle, our third rescue lending platform in credit, a couple of new products from [Strategic Partners], our secondaries business, some products in the real estate debt area and so forth.”