BREAKINGVIEWS-Blackstone safely stays in its own high-speed lane

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, Feb 6 (Reuters Breakingviews) - Steve Schwarzman knows a thing or two about wealth. It’s no wonder that Blackstone BX.N, the investing colossus he runs, found a way to collect vast sums from rich individuals in much the same way it has from big institutional pools of money. Rivals are getting creative in their approaches, however, and potentially endanger the king of capital.

The latest quarterly results from Blackstone, Apollo Global Management APO.N and KKR KKR.N provided further evidence of how cash from pension plans, endowments and sovereign funds that expires after about a decade is ebbing in significance. Blackstone, for example, leaned heavily on fees paid to manage money with no sell-by date. The performance-based portion also soared more than 700% from a year earlier, to $1.4 billion, thanks to one-off, multi-year payments.

Much of the gain owed to typical sorts of investors. Just beneath the surface, however, is a steadier income stream from individuals, such as those backing Blackstone’s $106 billion real estate-focused BREIT. In January alone, the firm raised nearly $4 billion from this private wealth bucket.

Of the $1.1 trillion Blackstone oversees, about a quarter of it comes from the workaday rich via their wealth advisers. So-called alternative investments, which take more work to buy and sell than stocks or bonds, represent only a small portion of individual portfolios. Brand value helps Blackstone stand out from the crowd of options. It says half the consiglieri putting client savings into its new infrastructure fund also allocated money to its other three major retail funds.

There have been bumps along the way, including a stampede out of BREIT that forced Blackstone to limit withdrawals. Even so, the firm leads the fee frenzy.

Larry Fink and Marc Rowan, who respectively run rivals BlackRock BLK.N and Apollo, are among those angling to shake up the market and break Blackstone’s dominance. Apollo wants to provide individuals with more access by stuffing private credit into exchange-traded funds. KKR is partnering with fellow investment firm Capital Group to roll out “hybrid” funds that combine public and private assets. The holy grail would be to convince the Trump administration to let everyone’s retirement plan invest in real estate, private equity, infrastructure and credit funds.

These newfangled structures are unproven, however, meaning that a single disaster or crisis risks derailing the efforts. Any negative attention might spook investors and invite regulatory crackdowns. For Blackstone, which has largely avoided the more inventive options for tapping private wealth, the danger is that it falls behind. Unless and until there’s an obvious threat, Schwarzman is better off staying in his lane.

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CONTEXT NEWS

Investing giant Blackstone said on January 30 that it generated $2.2 billion in earnings available to be distributed to shareholders in the last three months of 2024, a 56% increase from the same period in 2023.

The results were boosted by a large one-time collection of fees on the performance of infrastructure and private equity funds that do not have set expiration dates. Across the firm, which manages some $1.1 trillion, such fee-related performance revenue jumped 728%, to $1.4 billion.

Peer Apollo Global Management said on February 4 that its comparable measure of earnings reached $1.4 billion in the fourth quarter, up 15% year-over-year, thanks in large part to growth in management fees, income from its Athene insurance business and the higher fees it charges to arrange capital markets transactions.