Suzanne Siracuse sat down with Blackstone’s Joan Solotar to discuss what it takes to build an advisor-centric alts platform, and how advisors can leverage alternatives for their clients.
Blackstone has been known as best in class for its institutional product offerings. Within the last five years, Blackstone’s retail AUM is up five times. “At the time we went public, we were managing an $88 billion firm total. Less than 5% was private wealth and it was friends and family,” Solotar said, noting that the financial crisis gave them the impetus to partner with RIA’s and pivot their strategy. “Five and half years ago we began designing bespoke products.”
Solotar remarked that everything they are designing has received a great reception. “The game changer was the creation of perpetual funds,” Solotar said, looking at non-traded REITs where an absence of compelling products available created an opportunity. “Most advisors today still aren’t allocating to alternatives, so it’s not enough just to show up with something.” Solotar believes education and messaging are required, and giving advisors access to the offerings is critical.
The minimal amount to invest in private real estate is $2,500, according to Solotar.
“Regardless of whether you are an institutional or individual investor you are going to be thinking about return, risk, and liquidity,” Solotar said.
Institutional Investors tend to have had upwards of 20-50% invested into alternatives, while individuals have less than 5% on average. “I think by and large a lot of individuals and advisors are conflating liquidity with risk,” noted Solotar.
90% of all real estate – and companies – are private. Making public offerings a small part of the investment pie.
Speaking about why institutions have much greater allocations to alts, Solotar said individuals lacked the products, technology, and means of gaining access to alts. Structural hurdles also play a role, as does education.
Siracuse asked how market conditions, such as inflation and labor shortage, impact the real estate space. As the largest investor in real estate, Blackstone has an enormous amount of data to pull from. They saw disruptions and inflation in the space happening in advance. Solotar noted labor shortages and the increasing price of building homes have changed things. “We’ve never had a period in the recent decades where the gap between buying a home and renting is so wide, with the advantage going to renting.” They used data from job locations and migration to anticipate which areas would experience the most real estate demand.
“Secular tailwinds will continue to increase allocations to alts,” Solotar theorized. With recent market volatility and 2022’s slow start, many investors are looking more closely at alts. “The prospect for rising interest rates, for example, has to make you question your fixed income portfolio,” Solotar continued, noting that inflation is also impacting cash holdings. Alts can be a ballast as stocks and fixed income struggle.
Looking to the future, biometrics and technology and e-commerce are on Blackstone’s radar. Digitization is also likely to have long-term tailwinds as well.
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