Blackstone's Race for $1 Trillion Leans on Ex-Analyst Joan Solotar
(Bloomberg) -- Steve Schwarzman’s Blackstone Group LP is a behemoth in private equity, real estate, credit and hedge fund investing, thanks to its ability to raise cash from giant pension plans and sovereign wealth funds.
But given the firm’s goal of managing $1 trillion in assets by 2026, it’s not enough.
The New York-based company, which is scheduled to report fourth-quarter results on Thursday, has moved full throttle into luring rich individuals and families -- groups with relatively little experience in alternative investments -- into choosing its offerings. With more than $70 trillion globally up for grabs, the payoff could be huge -- or an expensive waste of time as even the world’s biggest wealth managers struggle to keep rich clients.
Leading Blackstone’s effort is a former banking analyst who has risen to become one of its key players. During her 12 years at the firm, Joan Solotar has gone from marketing acquisitions to heading the global effort to build out its private-wealth group. In the next decade, she plans to more than quadruple the group’s $58 billion in assets, eclipsing the size of entire private-equity firms Blackstone counts as rivals.
“We are a very competitive place,” said Solotar, 54. “Unless you have the scale we have, it would be hard to replicate the effort.”
Private-equity firms are looking for new growth areas as longtime investors start to do more deals without them. For Blackstone, the push for high-net-worth clients could also help address one of Schwarzman’s longstanding gripes: the firm’s share price, which has barely budged beyond the level of its June 2007 initial public offering even though its total return has matched that of the S&P 500 Index.
Retail investors are “low-hanging fruit,” said Paul Auslander, director of financial planning at Clearwater, Florida-based ProVise Management Group. “Blackstone made their name in private equity, and now they’ve got to convince the masses how it all translates to other types of investments.”
Blackstone has spent eight years building an engine to tap investors that some rivals have often shunned. Solotar took the reins four years ago. The firm is now focusing on expanding faster in Europe and Asia and focusing on those with as little as $1 million to $5 million in assets, who previously never could have accessed Blackstone’s platform.
The $457 billion asset manager has created about a dozen retail funds designed for high-net-worth individuals and wealthy families’ investment vehicles, including an unlisted real estate trust and a fund that can buy across asset classes.
With investments starting at $2,500, the property trust has grown to about $4 billion since its 2017 launch. In addition, Solotar has built a team of about 130 employees who help to channel Blackstone’s retail products through a global network of private banks, independent wealth advisers and family offices. Other private-equity behemoths have sharpened their focus on retail investors, but the range and reach of Blackstone’s efforts make it the current industry leader.
“Blackstone is head and shoulders above the rest of them right now in terms of how robust their platform is and how deep they are with their distribution network,” said Devin Ryan, an analyst for JMP Securities LLC in New York. “While they’ve got a few irons in the fire, it’s definitely an important part of Blackstone’s growth channel.”
Solotar isn’t your prototypical private-equity titan. She grew up in Queens across the East River from Blackstone’s Park Avenue headquarters. After graduating from the State University of New York at Albany in 1986, she made the rounds of job interviews at finance firms, often dressed in clothes borrowed from her mom.
Solotar recalled that period in a 2016 speech at her alma mater. “I had my degree in management information systems, my hopes of working in finance, the love and pride of a family for whom I was the first to graduate college, and not much else," she said. After applying for jobs, “I also remember the sinking feeling of getting rejected again and again."
Solotar got her break when First Boston -- now part of Credit Suisse Group AG -- hired her as an equity research assistant. After a stint as an analyst at Donaldson, Lufkin & Jenrette, she ran Bank of America Corp.’s equity research team before joining Blackstone in 2007.
Impressed by her knowledge of money managers, Blackstone recruited Solotar to head up external relations and strategy in the same month as the IPO.
“Joan was the ideal choice as the firm prepared to face the public markets,” said Tony James, Blackstone’s executive vice chairman. “Her guidance during this period has been invaluable.”
The world has more than 40 million millionaires, according to Credit Suisse, underscoring the potential to sell beyond pension funds and other giant pools of money. But for Blackstone -- a household name among traders and bankers -- targeting this group isn’t easy.
Retail investors are less familiar with private equity and are wary of locking up their money for years and paying higher fees than with traditional mutual funds. Blackstone has begun working with investment advisers to try to overcome this reticence, offering two days of instruction on the firm’s asset classes through its Blackstone University education platform.
“Education is going to be a big focus and effort for them for several years,” Ryan said. “It’s critical to the success here as the advisers have to understand the products and explain alternative assets to their clients.”
Luring retail investors brings other challenges, too. Funds that rely on a larger group of smaller clients expose Blackstone to a global cobweb of legal requirements, compared with the firm’s institutional products. Due diligence can be tricky and time-consuming for Solotar’s team outside the U.S.
With rich individuals and families dotted across the world, the team also has to be mindful of cultural attitudes about discussing personal wealth.
“In the U.S., high-net-worth individuals love talking about money and investment,” said Pilar Junco, a London-based senior managing director on Solotar’s team. “In Europe, meanwhile, it’s not a topic that they want to talk about. Asia is completely different, too, where lots of people have made their own money.”
Even with these obstacles, business has boomed for Solotar’s team. The private real estate investment trust alone raised more than $300 million in one month last year. “And we’re just seeing the momentum build,” Solotar said at Blackstone’s 2018 investor day.
During her speech three years ago at her alma mater, Solotar told graduating students to under-promise and over-deliver. If she follows her own advice, Solotar’s team may eventually oversee more than the $250-billion target mentioned at the Blackstone event last year.
“Joan has been a champion” of maintaining Blackstone’s standards, said Jon Gray, the firm’s president. “She’s brought tremendous creative energy to this key growth area for our firm.”
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