NEXUS 2024: Blackstone’s Gray: Product design key to unlocking $80trn individual investor opportunity

Private markets products geared towards the wealthy require the same standard of care as institutional investor offerings, according to the firm’s president and COO.

Blackstone’s Gray: PE is still in the early days of broadening investor universe

GPs need to look at individual investors as small institutions and think about returns in the same way as they would for any other LP, according to Blackstone’s president and chief operating officer Jonathan Gray.

Speaking at PEI Group’s NEXUS 2024 summit on Thursday, Gray said product design is a key component of private markets adoption among the individual investor community.

“You have to design products that work for those individual investors, both as it relates to liquidity, returns, tax efficiency… and then you have to deliver for them. And that is the same for whoever the underlying customer is.”

Blackstone estimates there is some $80 trillion of individual investor wealth globally, which it defines as investors with $1 million or more of investable assets.

Gray added that understanding liquidity, as well as having the capability to invest in a timely basis and an organization that operates at the highest standards of transparency are all critical components of product design.

“It’s making sure the returns work,” he said. “It’s making sure that your disclosure and the way you’re out there in the field works. If you think about Blackstone, 10 or 15 years ago, in some ways, we had a few hundred customers. Now we have a few hundred thousand customers. But at the end of the day, it’s all remarkably simple. Where we invest the capital, no matter who the underlying beneficiary [is], that’s what matters.”

Gray added that this means “figuring out key investment trends” and “having an investment process that’s pretty much identical,” regardless of where capital is invested, or for whom.

“It’s [about] going through the exact same investment committee process, because the standard of care and the outcome has to be the same. If we don’t deliver – doesn’t matter who the customer is – if we don’t do a good job, people aren’t going to come back and invest with us.”

According to Gray, individual investors are “not that different” from many of the institutions as they’ve got a long-term time horizon.

“Yet when you look at their investment profile, it looks very different. The institution is allocated 35-40 percent to alternatives in an effort to trade some liquidity for higher returns… That $80 trillion, it’s probably 1 percent allocated to alternatives. If you create products that work for individuals, that have a little more liquidity, that are more tax efficient – 1099 instead of K-1 – that don’t have drawdowns and they’re all the time invested… that is the core of this business.”

Blackstone recently launched BXPE, a private equity strategy targeting individual investors. The fund, which had raised $1.3 billion as of January, will charge a 1.25 percent management fee on assets and a 12.5 percent performance fee above a 5 percent annual return hurdle.

A growing number of private markets firms have launched evergreen products over the past year as a challenging fundraising environment underscores the importance of unlocking new sources of investor capital.