Perhaps unsurprisingly for a business focused on such alternative investing, its private wealth solutions head says that many investors aren't sufficiently allocated to the area. Even so, the comments chime with a broad-based conversation about private markets, for example.

Many portfolios are unwittingly light in holdings of privately held companies because investors don’t realize that a large a swathe of corporates aren’t listed, Blackstone says.

The US-listed firm, which specializes in private equity and similar investments, makes the case for holding unquoted companies in spaces such as AI where valuations of listed firms, such as chipmaker Nvidia, have skyrocketed as artificial intelligence has prompted major market buying. 

“Many clients are surprised to learn that nearly 90 per cent of scaled, established businesses and commercial real estate around the globe are privately owned, a remarkable skew especially when we consider that many end investors use stocks and bonds as the traditional frame of reference,” Joan Solotar (pictured), global head of Blackstone’s private wealth solutions group, writes in a quarterly letter to investors. 

It is perhaps unsurprising that a firm renowned for areas such as private equity should advocate these asset classes. Nevertheless, there has undeniably been a strong narrative around why wealth managers, private banks and family offices should hold non-listed assets to achieve more diversified, and long-term sources of return. More firms are staying off listed markets and taking longer to to hold an initial public offering (IPO). But the trend isn’t uncontroversial – enthusiasm for private credit has drawn worries about how the sector is overhyped and vulnerable to higher US Federal Reserve interest rates. (In an article yesterday, we talked to a firm that says credit risk and non-bank lending exposures are a cause of concern.)

The rising enthusiasm for private markets isn’t confined to pooled funds. Direct investing has been a talking point – if perhaps not as hot as before US interest rates started rising two years ago. According to BNY’s wealth management business, for example, a recent survey it conducted found that 62 per cent of US family offices made at least six direct investments in a private company or in private lending last year, with 71 per cent planning to make the same number or more in 2024.

Time to pay attention
Solotar said investors might not appreciate how their market positioning needs a re-think. 

“It means that many portfolios today contain an often unintended underweight to privately owned companies and assets. Many portfolios today are also missing out on an important source of diversification. In fact, our recent poll of Blackstone University participants found that portfolio diversification is the number one benefit cited by respondents when explaining private markets to clients who are newcomers,” Solotar said. â€śMany private wealth investors today are looking to augment growth and income in their portfolios while seeking diversification of the public equities and fixed income they already own. More are examining private markets, understanding that private equity, credit and real estate can be core portfolio building blocks." 

The rise of investor interest in artificial intelligence provides an “excellent backdrop for how private markets can be different,” Solotar writes. “As attention to the subject grew over the last year, the major public market means of accessing AI has led to some stupendous valuations. But the price you pay still matters. Early on, Blackstone has taken a picks-and-shovels approach to AI with a view that the necessary infrastructure will be uniquely valuable assets over the long run.”

"The firm has invested in the fastest-growing large-scale data center business in the world today, which we think is positioned to benefit from what is expected to be a once-in-a-generation surge in data creation. Sticking with long-term megatrends that take time to fully play out, and investing in the physical infrastructure at scale, has also been Blackstone’s approach with e-commerce and warehouses, and rental housing amid a long-term housing shortage," she said. (Her letter did not disclose specific names of firms Blackstone has invested in.)

Solotar’s letter comes as global equity markets dropped sharply at the start of this week – before partly recovering. One of the concerns, reports have said, is the high valuations of listed “Magnificent Seven” tech stocks: Alphabet (parent of Google), Amazon, Nvidia, Meta, Tesla, Apple, and Microsoft.

Blackstone is one of several major, listed players in the private markets space, such as Carlyle (US) and KKR (US). As reported here, Blackstone has sought to widen access to this sector via “evergreen,” aka “perpetual” fund structures that don’t come with fixed exit points, capital calls and drawdowns.

In the second quarter of 2024, Blackstone's net income fell to $948.4 million; in the fourth quarter of 2024, it was down from $1.203 billion a year earlier. Fee-earning assets under management rose to $1.076 trillion from $1.001 trillion.