Insurers, retail investors to fuel Blackstone growth as AUM swells to $450 bln

Blackstone Group is ramping up efforts to tap into multitrillion-dollar markets of smaller retail investors and insurers, President and Chief Operating Officer Jonathan Gray said during a first-quarter earnings call.

Retail investors and insurers represent “a real window of opportunity” as the $450 billion asset-management firm looks for ways to expand, Gray said.

“We are in the early innings of our build-out in these vast under-penetrated areas,” Co-Founder Stephen Schwarzman said on the call, adding that he expects AUM for both retail and insurers to grow substantially over time.

Blackstone raised around $3.5 billion from retail investors in Q1, representing roughly 20 percent of incoming capital during the quarter.

Blackstone has increasingly targeted smaller investors for some of its more liquid products, Joan Solotar, head of private wealth solutions, told Bloomberg TV in a March interview. The firm historically raised money from larger institutional investors, like public-pension systems and sovereign-wealth funds, for its large private investment funds.

“We are targeting the $1 [million] to $5 million investor. It’s the biggest client of many of the brokerage groups you might think of, and they are really under-penetrated in the alts business,” she said. Retail investors represented around 15 percent of what Blackstone raised last year, Solotar added.

Solotar said the fee structure of these vehicles is relatively similar to that of their institutional funds. They do offer, however, more liquidity options than what’s typically available in a 10- or 12-year private-market fund.

On the insurance front, Blackstone recently hired Michael McRaith, former director of the U.S. Department of the Treasury’s Federal Insurance Office, to bolster its new Blackstone Insurance Solutions business. The platform will design custom, multiasset-class portfolios and strategies geared toward insurers. Chris Blunt, a former president of New York Life Insurance Company’s investments group, was tapped to lead the insurance business in January.

Insurers have strict capital requirements that largely confined their investments to corporate and government bonds. A decade-long period of low interest rates limited returns, which led some to move investment assets into better performing alternative strategies like private equity and private credit.

In the earnings call, Blackstone executives said they expected insurance investors to tap the firm for access to collateralized loan obligations — securities backed by pools of corporate loans —  and mortgage strategies.

“The virtuous cycle requires that we deliver great returns. So whatever we go into, we have to make sure we have the right team,” Gray said. “We can grow quite a bit.”

Blackstone’s AUM grew 22 percent year-over-year. The carrying value of its PE platform, which had more than $111 billion of assets, increased by 6.4 percent during the quarter.

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Jonathan Gray, global head of real estate at Blackstone Group, emerges with U.S. President-Elect Donald Trump after their meeting at Trump National Golf Club in Bedminster, New Jersey, on Nov. 20, 2016.  REUTERS/Mike Segar 

CORRECTION: An earlier version of this story reported Michael McRaith would lead Blackstone’s Insurance Solutions business. The business is led by Chris Blunt, who was hired in January.