NEW YORK (Reuters) - Main Street investors in the United States may soon be a step closer to stocking their retirement accounts with hedge fund portfolios called liquid alternatives, a top executive at the Blackstone Group said on Monday.
Blackstone has been pushing to get liquid alts on the menu of options for U.S. workers’ employer-sponsored, tax-deferred 401(k) retirement savings plans, and Vice Chairman J. Tomilson Hill said the firm was finally winning over some trustees who approve plan offerings.
“We are in the middle of trying to crack the code on 401(k)s and there is daylight because there is demand,” Hill, who runs the company’s $68 billion hedge fund unit, said at the Reuters Global Investment Outlook Summit in New York.
To date, 401(k) plans have offered little to no exposure to alternative assets such as hedge funds and private equity because of concerns they are too volatile for ordinary investors.
But with some Blackstone liquid alternative funds returning over 4 percent this year, far outpacing a flat performance by the Standard & Poor’s 500 index, Hill said the investment case was gaining traction.
Hill said part of the reason for the outperformance of the Blackstone funds is that Blackstone’s managers identified overbought healthcare and energy companies before other companies did.
Blackstone, the largest alternative asset manager, oversees roughly $7 billion in assets in liquid alternatives, which are packaged as mutual funds and offered to retail investors through registered investment advisers.
Getting these liquid alts onto companies’ 401(k) menus could translate into a flood of fresh assets not only for Blackstone but also for other providers of such funds, including Arden Asset Management and Franklin Templeton’s K2 Advisors as well as Goldman Sachs, experts said.
Hedge funds Bayview Asset Management, Emso Partners, HealthCor Management, Sorin Capital and Two Sigma Advisers are among the 19 sub-advisers the Blackstone Alternative Multi-Manager Fund uses.
Blackstone pioneered making hedge funds available to retail investors when it worked with investing giant Fidelity Investments several years ago to offer its clients a liquid alts fund, Blackstone Alternative Multi-Strategy Fund Class I.
A clone of that fund is now available through registered investment advisers and through Merrill Lynch’s investment platform. Soon it will be available through UBS’ investment platform as well, Hill said, noting, ”There is massive demand from registered investment advisers.
“Institutions want it, so why shouldn’t individual investors also get it?”
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Reporting by Svea Herbst-Bayliss; Editing by Leslie Adler