Private equity firms, having largely tapped out fundraising with institutional investors, are now turning to individual investors.
The firms see great potential in bringing in money for their funds from these investors. It looks like there’s plenty of runway, especially among wealthy investors.
Individuals around the world with at least $1 million of assets accounted for $79.6 trillion in investible assets in 2020, according to consulting firm Capgemini, as cited by The Wall Street Journal.
And private-equity firms calculate that under 5% of that kitty is invested with them.
But it’s not just millionaires who can invest in PE. Blackstone (BX), the biggest private equity firm, offers several funds for the Average Joe.
Blackstone Offerings
Blackstone Alternative Multi-Strategy fund (BXMYX), a mutual fund encompassing a variety of alternative-asset investment strategies, has no minimum investment, according to Morningstar. But it has generated only a 1.56% annualized return over the past five years.
Blackstone Real Estate Investment Trust BREIT, a non-tradable REIT, has a minimum investment of $2,500. And it produced an annualized return of 14.5% for the five years through April 30. The S&P 500 generated a 13.34% annualized return for the five years through June 7, a slightly different period.
Blackstone Private Credit Fund BCRED also has a $2,500 minimum. Its institutional shares offered a return of 9.8% in the 12 months through May 30.
Bang for the Buck?
It’s unclear how much bang you get for your buck in these types of funds. They generally haven’t been around long enough to judge their performance in a bear market, and many haven’t shined particularly brightly in the recent bull market.
Alternative-asset enthusiasts say that these assets act as a diversifier for investors’ portfolios. But they can also act as an accelerator of returns -- both on the upside and the downside.
Using Blackstone’s stock as a proxy for the alternative-asset market, it has returned 27.81% annualized over the past 10 years, almost double that of the S&P 500, which returned 14.43%. But in 2008, the S&P, excluding dividends, dropped 37%, while Blackstone plunged 67%.
Alternative assets, such as real estate, private equity, commodities and credit products, can be quite volatile. So before jumping in to alternative assets, make sure you understand the risks.
The author of this story owns shares of Blackstone.
