Blackstone may slow launch of private equity fund after investors pull out

Blackstone may slow launch of private equity fund after investors pull out

Blackstone has warned of the risk of delaying the launch of a new private equity fund aimed at high net worth individuals, as it faces heavy withdrawals from investors in two other property and credit funds aimed at a similar clientele.

The New York-based investment manager is preparing to open a fund called the Blackstone Private Equity Strategies Fund, or BXPE, which would become its flagship strategy for bringing wealthy individuals into its private equity business. Blackstone has always served institutional clients such as pension funds.

Blackstone has in recent days informed wealthy investors and their financial advisers that it may wait for fundraising conditions and financial markets to improve before launching BXPE, according to people familiar with the matter. Clients of Blackstone’s other “retail” products told the Financial Times they expect the fund to launch in early 2023.

The potential delay comes days after the group limited withdrawals from its $69 billion Blackstone Real Estate Income Trust after a series of redemption requests from its wealthy individual investors. In 2021, Blackstone launched a similar product designed for credit investments which also received refunds.

Restrictions on withdrawals from the real estate fund have raised concerns about its future growth and hit Blackstone’s share price. Blackstone declined to comment.

Blackstone has also informed clients that it will not be raising new capital for vehicles known as Blackstone Total Alternative Solutions funds, which were conceived almost a decade ago when it initially sought to attract assets. wealthy people.

BTAS funds have a lifespan of 10 years and are raised annually. Blackstone instead plans to direct interested clients to BXPE, which is designed to be a perpetual vehicle that does not return capital at the end of a fund’s life. BXPE clients would commit their capital when making their initial investment instead of having it called on a case-by-case basis.

Since the years following the financial crisis, Blackstone founder Stephen Schwarzman has sought ways to make buyout activity accessible to a wider range of investors beyond pensions, endowments and sovereign wealth funds. who have traditionally been the company’s customers.

BXPE is being set up to invest in corporate buyouts and equity-focused strategies, including late-stage venture capital investments, music royalties, and buying stakes in other venture capital firms. investment or their funds.

The fund is poised to be Blackstone’s most complex product to date. Unlike Breit and Bcred, the sister credit fund, which both generate a significant portion of their returns from regular cash distributions to investors, BXPE will not pay dividends.

Investors will derive their income from episodic and unpredictable asset sales, or from the complex and often subjective raising or lowering of the quarterly net asset value of one’s holdings.

This structure can run into problems if investors start withdrawing their money when markets fall or financial conditions become tight, said Kevin Kneafsey, senior investment strategist at Allspring Global Investments.

“The mechanism is going to run into a problem when people are withdrawing money and there needs to be a valuation of the underlying assets,” said Kneafsey, who noted that if Blackstone prices the portfolio too low, it could fuel redemptions. If assets are priced too high, investors who redeem from the fund at inflated prices “would effectively be taking money from people who are not redeeming”, he added.

“The valuations of BXPE’s assets may differ from the liquidation values ‚Äč‚Äčthat could be realized in the event that BXPE is forced to sell assets,” warns BXPE’s prospectus.

Since last spring, investors have been pulling out of Breit at an increasing rate, hitting limits set by Blackstone to hedge against the risk of being forced into a sell-off of illiquid real estate properties to meet takeovers.

Breit allows 2% of total assets to be redeemed by customers each month, with a maximum of 5% allowed in any calendar quarter. This quarter, Breit and Bcred reached their redemption limits, although withdrawals were not limited for the latter.

BXPE will allow investors to commit on a monthly basis, but will only allow withdrawals quarterly up to a cap of 5%. BXPE will invest up to 80% of its assets in equity-focused strategies and up to 20% in debt securities, according to filings.

When launched, BXPE will compete with products run by competitors such as Partners Group, Hamilton Lane and StepStone Group.

Executives of these funds admitted that Breit’s recent withdrawal limits and greater volatility could slow new commitments from wealthy investors. But they expressed confidence in the long-term prospects of the market.

Bob Long, managing director of StepStone Private Wealth, told the FT that equity-focused funds may not face the same redemption risks as Breit because there is no obvious way to gain public market exposure to private equity strategies, unlike real estate or credit where investors have access to dozens of publicly traded vehicles.

Additional reporting by Sujeet Indap in New York

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