Blackstone’s Gray: Europe’s wealth channel is tough terrain

The alts giant is set to launch BXPE, a dedicated private equity offering for wealthy individuals, in the coming months after it postponed raising capital for the vehicle.

Europe’s complex regulatory market and slightly more cautious private wealth investors have made the region tougher to penetrate than other markets, according to Blackstone’s president and chief operating officer Jonathan Gray.

Speaking on the firm’s third-quarter earnings call earlier in October, Gray said: “On Europe, it is definitely a harder market… The US is the largest market and the most open to alternatives. Asia would be next… Europe has several challenges. One is just regulatory.”

Gray noted that wealthy individual investors’ access to alternatives has largely been limited by “slightly different rules” in every country in Europe.

“The second thing is that investors there have not had a lot of exposure to alternatives. There tends to be, particularly on the continent, more aversion to anything that’s perceived as riskier – even though we would point out the returns we’ve generated [and] the risks we’ve taken have been very favorable over time. So, it’s certainly a tougher terrain. We have a couple of small products today in credit and real estate, but right now it’s not a meaningful piece of what we do.”

The alternatives firm has had its sights set on Europe’s wealth channel for nearly two years, reported affiliate title Private Equity International. Gray noted on Blackstone’s fourth quarter and full-year 2021 results call in January last year that Europe is a “real opportunity” for the firm over time, although the structural differences in the regulatory landscape, language and fragmentation of distributors and wealth managers make it challenging to operate.

Despite challenges attracting inflows from the region’s wealthy investors, Gray said the firm is a “persistent group.”

“We do want to try to build scale products in Europe. We’ve got a number of people on the ground, but it’s going to be a little bit tougher sledding. But I think over time there should be opportunity because [of] the same outperformance relative to liquid markets. This basic idea of trading liquidity for higher returns makes sense. I think it should happen in Europe, but it’s certainly slower today.”

Blackstone has more than 40 employees in its private wealth solutions team in EMEA across London, Zurich and Paris. Its global private wealth business nearly doubled in headcount over the course of 2022, Joan Solotar, global head of the firm’s Private Wealth Solutions group, told PEI in January.

The firm raised $3.3 billion for its perpetual vehicles from the private wealth channel in the third quarter, mainly led by its private credit fund BCRED, Gray said on the call accompanying the earnings results.

Gray also said the firm is set to launch a perpetual vehicle for private equity called Blackstone Private Equity Strategies Fund (BXPE). The vehicle will invest across buyouts, secondaries, life sciences, tactical opportunities and other opportunistic strategies. He added that Blackstone is working with several distributors and expect inflows to start early next year.

BXPE is “structured a bit differently” to Blackstone’s BREIT and BCRED vehicles, Gray said, adding that the universe of investors is “more limited.”

A filing with the US Securities and Exchange Commission in May 2022 showed that capital raised via BXPE will make direct investments and invest in secondaries, debt and other securities. It may also invest in minority, non-controlling, equity, equity-related and/or revenue interests in fund managers.

It is estimated that the individual investor channel globally has over $80 trillion of assets, Gray said.

Blackstone launched a campaign early this year to attract more individual investors.