Farhad Karim, chief operating officer of Blackstone Private Wealth, says the Canadian market is 'super important' to the firm.EDUARDO LIMA/The Globe and Mail
Blackstone Inc. BX-N has chosen Canada to debut a new fund that gives retail investors exposure to a broad swath of its private-market investments as the New York-based asset manager looks to extend its reach in the Canadian market.
The Blackstone Private Markets Fund, known as BXPM, launches first to Canadian and Japanese investors. Blackstone considers both countries priority markets as it aims to tap into growing demand from wealthy individuals who want to add privately owned assets to their investment portfolios.
It is the first time that Blackstone, which manages more than US$1.3-trillion, will offer individual investors a single fund that invests in private equity, infrastructure, real estate as well as credit, at a time when private credit loans and buyout funds have faced industry headwinds.
The fund launch is part of a broader expansion strategy that Blackstone has had in Canada for several years, which included opening new offices and rolling out a suite of private wealth products.
Blackstone now has offices in Vancouver, Toronto and Montreal, and senior members of Blackstone’s global investment teams made stops in Toronto and Montreal this week.
President and chief operating officer Jon Gray, who called Canada a “sleeping giant, economically” at last week’s Canada Investment Summit, is “up here a lot for a reason,” chief operating officer of private wealth Farhad Karim said in an interview.
“Canada is super important to the firm, and we continue to grow the business here,” he said.
That strategy, which extends beyond Blackstone’s private wealth business, has included major transactions with prominent Canadian companies, and predates the current push that Prime Minister Mark Carney is leading to attract billions of dollars in new private-sector investment to Canada.
Last year, Blackstone led a consortium of investors in a $7-billion deal to buy a minority stake in Rogers Communications Inc.’s wireless infrastructure. And in August, it purchased 25 per cent of Air Canada’s Aeroplan loyalty program for $2.5-billion with a group of Canadian pension funds.
The current business climate feels like “a reboot where it feels even more compelling,” Mr. Karim said.
In creating BXPM, Blackstone is responding to demand from retail investors for a simple way to invest in multiple types of assets through a single fund. But it is also a way to give those investors more balanced portfolios as some pockets of private markets go through a period of volatility.
The fund will have exposure to Blackstone’s global investments across its core businesses strategies, including major infrastructure, company buyouts, office and industrial properties and private loans.
The fund is open to accredited investors who typically have higher-than-average incomes significant investable assets.
A wave of concern in private credit markets over the past year led to a spike in requests from investors to cash out of funds made up of private loans to companies. Blackstone runs the largest retail fund of its kind, the Blackstone Private Credit Fund, or BCRED.
As some banks and hedge funds raised questions about the quality of the loans that make up private credit funds, “people heard that, people got nervous, and certain people wanted out,” Mr. Karim said.
In two consecutive quarters, requests to redeem money from the fund were double its 5-per-cent limit, and Blackstone capped redemptions. But Mr. Karim said calls to sell out of BCRED are starting to slow.
At the same time, however, Blackstone was fielding some of its best quarters for new money flowing into its private credit, infrastructure and real estate products, he said.
Blackstone has US$324-billion in assets under management from individual investors, including US$5-billion from Canadian retail clients. “And that continues to grow,” Mr. Karim said.
The BXPM fund offers quarterly redemptions but with a lower limit set at 3 per cent of its net asset value, according to offering terms.
Investments in credit are the smallest tranche of BXPM, at about 10 per cent of the fund. Private equity makes up 50 per cent, and infrastructure and real estate each account for 20 per cent.
The fund will regularly be rebalanced to keep a consistent mix of assets “so you know what you’re actually investing in, and in five years, it doesn’t look like something that you didn’t sign up for,” Mr. Karim said.
Blackstone is putting significant resources into educating investors, financial advisers and even the chief investment officers of banks about its “semi-liquid” products, which offer some liquidity but keep most of the fund’s money invested for a longer time period.
As individual clients increasingly invest in privately owned, illiquid assets that have traditionally been the domain of the largest, most sophisticated investment funds, “you cannot have investors who do not understand the semi-liquid structure,” Mr. Karim said.
That means “getting to people and explaining the real benefit of a semi-liquid structure is about staying into it and riding the cycles.”
Editor’s note: This article has been corrected to state that the Blackstone Private Markets Fund is launching first in Japan as well as Canada.