The Blackstone Group L.P. (NYSE:BX) is a massive asset management firm. It's so large, in fact, that it has to make bold moves in order to keep growing. Its aggressive move into single-family homes is an example. Now there's a rumor that the company is going to buy into hedge fund managers. Is this a good idea right now?
Blackstone was founded by current CEO Stephen A. Schwarzman and Peter G. Peterson in 1985 with $400,000. Today, the company has around 1,800 employees, 24 offices around the world, and more than $200 billion in assets under management. Its customers include public and corporate pension funds, academic, cultural and charitable organizations, corporations, and individual investors. Its expertise spans private equity, real estate, credit markets, hedge funds, and mergers and acquisitions, among others. Essentially Blackstone is big and diversified.
Big companies need to make big moves to keep the top and bottom lines moving higher. For example, in the housing market, The Blackstone Group L.P. (NYSE:BX) is one of the key players trying to create an institutional market for single family homes. Typically left to mom and pop investors because of the complexity of dealing with so many individual assets, the burst of the housing bubble allowed Blackstone to buy more than 16,000 homes. That's enough to start generating synergies if the business makes use of the Internet to interact with renters and if the homes can be purchased in close proximity to each other.
Clearly, the moribund housing market was ripe for getting in at low prices. Blackstone did so in a big way.
Is there a similar opportunity in hedge funds? That depends, but there is certainly a chance to make purchases.
The hedge fund industry is largely reclusive, despite a few vocal standouts, and ego driven. The people who start hedge funds don't do it because they're concerned they might fail—they do it because they are certain they will win. These facts can make dealing with hedge funds an unusual and risky venture. It's why investors need to be relatively wealthy to invest in a hedge fund.
Often relatively small, hedge funds that have been started by one or two people are increasingly looking for a way to move on. For example, if the original managers are ready to retire, but haven't fully considered how to do so, there's the question of an exit strategy. World famous George Soros simply closed up shop, returning money to investors. Others would like to cash out instead of just shutting down. This is the opportunity that Blackstone is eying.
With plenty of money at its disposal, Blackstone is rumored to be looking to buy minority stakes in hedge funds looking to sell. Taking a stake in a solidly performing hedge fund is clearly a great idea. How you actually figure out which hedge funds have a distinct and lasting advantage in the industry, however, is much more complex.
Blackstone works with hedge funds, providing investors access through its many services. So researching these arcane investments isn't new to the company and it has preexisting relationships with many hedge funds. Both good things, but mistakes can be costly. And other companies have had mixed results.