Blackstone Inc. raised $1.3 billion for its first private equity fund for rich individuals, achieving one of the biggest initial hauls for a fund of its kind despite a delayed launch.
The cash pile, disclosed in a filing Monday, underscores the intensifying race among alternative investment firms to court private wealth as key sources of institutional money dry up.
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Dubbed BXPE, the fund will invest in private strategies including startups, fund stakes and the buyouts that Blackstone Chief Executive Officer Steve Schwarzman is known for.
BXPE’s structure has a different reach from some of the other firm’s products for individuals, President Jon Gray told Wall Street analysts last year. It’s targeting people who have at least $5 million to invest.
“The universe is a little more limited,” Gray said when announcing the fund in October on an earnings call. “But I would say is still very large.”
The Blackstone president is pushing to expand the $1 trillion firm’s sources of money beyond big institutions. It’s competing with the likes of KKR & Co. Inc. and Apollo Global Management Inc. to woo the world’s so-called mini-millionaires. Across private equity, this class of investors — the world’s suburban rich — could compensate for plateauing investments from endowments, pensions and other institutions.
The industry’s overtures challenge conventional wisdom that financial advisers and individuals should seek out just stocks, bonds and index funds. Private equity’s pitch: Investors stand to get outsize returns if they forgo some ability to cash out — and are willing to pony up higher fees.
This premise will be put to the test as private equity moves downmarket and attracts more scrutiny.
Delayed Launch
Blackstone — an early mover in marketing funds to wealthy individuals and now the biggest player — started designing the Blackstone Private Equity Strategies Fund about six years ago and planned to launch by early 2023.
But then markets turned and investors got uneasy about tying up money. Blackstone delayed BXPE’s launch and took a closer look at how to structure the fund.
The firm was dealing with another test: A Blackstone real estate fund was forced to limit redemptions in late 2022 when investors got jittery about property markets and ratcheted up requests for cash.
The Blackstone Real Estate Income Trust since showed signs its backlog is easing, with withdrawal requests in December falling 80% from its January 2023 peak. The firm has said that BREIT has outperformed public rivals since inception. Still, it was a high-profile reminder that individuals run for exits when markets turn.
Blackstone’s private equity fund will still offer investors liquidity — within limits.
Investors can take out up to 3% of the fund’s net asset value each quarter. They stand to forgo a fraction of the value of their shares if they cash out before two years.
While BXPE isn’t charging traditional buyout fund’s fees of 2% of assets and 20% of profits, it’s pricier than many traditional stock funds. BXPE investors will pay 1.25% on net asset value and 12.5% of total returns as long as it notches 5% gains.
The fund will take in money continuously and have no deadline to exit bets, with a goal of gaining as much as tens of billions of dollars.