Investing in Private Markets: Q&A with Blackstone’s David Stubbs 

Wealth managers understand the potential benefits of private markets investments, such as higher returns, diversification, and reduced volatility compared to public markets, but the nuances of these investments often remain opaque to many.  

Long-term and patient investors can realize substantial returns in the private sector, along with notable advantages from diversifying beyond public markets, particularly during selloffs or corrections. While private investments have their own set of risks, financial advisors may be at risk of missing out on possibilities that might considerably improve client portfolios. 

David Stubbs, managing director and senior investment strategist for the Americas in the Private Wealth Solutions group at Blackstone, shared his views on the overall sentiment among financial advisors to private markets investments, why they should consider them for their clients, and how advisors can overcome their lack of understanding of these markets, among other topics. 

CM: Why should financial advisors consider private markets for their clients? 

DS: The first reason is diversification. Private markets represent a vast array of investment options across private equity, private credit, real estate and infrastructure assets. Historically, the returns to these asset classes have not been perfectly correlated with public markets, and hence, there’s potential to improve a portfolio when included.  

Secondly, is performance. Historical data shows a significant outperformance of private equity versus public equity (14.8% return for private equity versus 10.8% for public equities^[1]), and the yields available today in private credit are well above yields available in listed credit instruments (9.2% versus 6.1% for high-yield public fixed income^[2]).  

Thirdly, with traditional fixed income now being viewed as a less reliable hedge to equity drawdown risk (thanks to shifting correlations between equity and government bonds), incorporating private markets holds out the possibility of reducing portfolio drawdowns. 

CM: What is the general sentiment regarding private markets among financial advisors? 

DS: Sentiment is positive and broadening fast across the advisor community. Recent years have seen the release of several game-changing products which have a number of advantages compared to the traditional drawdown structure within which private market investments have hitherto been offered. These semi-liquid, perpetual vehicles allow clients to be invested on day one, offer quarterly windows where liquidity is expected to be available up to the limit of the fund’s net asset value and are perpetual, thereby potentially reducing the reinvestment risk present when capital is returned to investors.  

These products have increased the share of portfolios which can responsibly be allocated to private markets, reflected in private market funds for individual investors growing at an annualized pace of approximately 28%^[3], and with public markets now at elevated valuations, the advisor community continues to embrace private markets. 

CM: Many RIAs lack a thorough understanding of the underlying exposures and return drivers for many private-market assets. How much of a barrier is it, and how do you overcome it? 

DS: At Blackstone, we are continuing to engage with the advisor community and have built the largest investor services operation in the alternatives industry to facilitate outreach and education for those advisors looking to deepen their knowledge around private markets. While we know that private market investing may not be embraced by everyone, we continue to see interest broaden, and as a new generation of financial advisors takes the reins, we expect portfolio allocations to rise across the industry. 

CM: Do advisors have preferred sectors or managers within private markets? 

DS: In terms of sectors, private markets can offer a vast array of investment opportunities often with very different expected return streams. Private equity is typically seen as having long-term growth potential, while private credit is an all-weather asset class which typically delivers most of its returns through income. Private real estate and private infrastructure holdings have elements of both and can often be a starting point for advisors looking to generate both yield and total return for their clients.  

In terms of managers, while investors will rightly want a selection of investment options across counterparties, we find that most wealth management firms prefer to onboard only a handful of private market managers. We believe the Blackstone approach of offering funds in each of the core asset classes can allow us to be the chosen partner for many in the wealth management community. 

CM: What vehicles and platforms do advisors access for private markets? For example, are they using evergreen funds, co-investments, fund-of-funds, etc…? 

DS: We see advisors continuing to migrate towards evergreen structures, which permit greater liquidity and longer-term, permanent exposure to an asset class compared to the traditional draw down structures. 

^[1] Morningstar, as of December 31, 2023. As of earliest common calendar year inception date. Return and volatility are based on quarterly returns and are annualized over the period January 1, 1987 to December 31, 2023. Volatility is represented by standard deviation. Private Equity is represented by the Cambridge Associates US Private Equity Index. Public Equity is represented by the S&P 500 Index.  

^[2] Morningstar, as of December 31, 2023. As of earliest common calendar year inception date. Return and volatility are based on quarterly returns and are annualized over the period January 1, 2016 to December 31, 2023. Volatility is represented by standard deviation. Private Credit is represented by the Cliffwater Direct Lending Index. High Yield is represented by the Bloomberg US Corporate High Yield Index.  

^[3] Source: Blue Vault, Interval Fund Tracker, Cerulli Associates, 2023. Represents 10-year assets under management growth in perpetual funds for individual investors, from Q3 2013 to Q2 2023. Funds tracked are interval funds, non-traded real estate investment trusts, non-traded business development companies, and tender offer funds. Figures based on gross asset value for non-traded real estate investment trusts and non-traded business development companies, and net asset value for interval and tender offer funds. 

Disclaimer 

The views expressed in this commentary are the personal views of David Stubbs and do not necessarily reflect the views of Blackstone Inc. (together with its affiliates, “Blackstone”). The views expressed reflect the current views of Mr. Stubbs as of the date hereof, and neither Mr. Stubbs nor Blackstone undertake any responsibility to advise you of any changes in the views expressed herein. 

This commentary does not constitute an offer to sell any securities or the solicitation of an offer to purchase any securities. This commentary discusses broad market, industry or sector trends, or other general economic, market or political conditions and has not been provided in a fiduciary capacity under ERISA and should not be construed as research, investment advice, or any investment recommendation. Past performance does not predict future returns.