- 46 minutes ago
Blackstone Private Equity Strategies CEO Viral Patel sits down with Forbes' Maneet Ahuja at the Nasdaq MarketSite to discuss the economic shift from public to private markets, and how individual investors can seize the opportunity for big returns.
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NewsTranscript
00:00When you look at public markets versus private markets, to your point,
00:04when you look at companies north of $250 million in revenue,
00:0686% of those companies are actually private.
00:11Welcome. I'm Anita Huja, editor-at-large at Forbes and founder of Iconoclast.
00:15And we're here at the NASDAQ market site, and I'm thrilled to be joined now by Viral Patel,
00:21CEO of Blackstone Private Equity Strategies.
00:23Viral, thank you so much for joining us.
00:25Thank you so much for having me.
00:26So Viral, Blackstone is the world's largest alternative asset manager
00:30with more than a trillion dollars in assets under management.
00:34You joined the firm 20 years ago in 2005.
00:38Can you walk us through some of the most pivotal moments during your career trajectory at Blackstone?
00:44Yeah, absolutely. So I've had multiple roles actually at the firm over time.
00:49I started in our advisory business when we were launching our tactical opportunities fund.
00:54I joined David Blitzer to get that going.
00:56I spent time with our growth equity business to help launch that.
00:59I spent time in our credit business.
01:01And now most recently the firms asked me to come back to lead up our private equity strategies for individual investors.
01:08And, you know, I'd say each one of those moments that I went through was pivotal in its own way.
01:13But I think maybe the narrative arc that fits across all of them was like this openness and willingness to say yes, right, to try something new from credit to opportunistic to private equity, advisory, restructuring.
01:26It's just a lot of different asset classes.
01:28And I think having that openness to go do that has been really helpful for my career, particularly at a place like Blackstone, which is incredibly entrepreneurial, right?
01:38We tend to reward and expect people to have that sort of an approach.
01:42So I think that really that willingness to say yes was kind of the key decision for me that kind of drove my career at the firm.
01:48And it's so interesting because you've worked around across so many different asset classes, right?
01:52And yet this is where all the action is right now, where the market is moving.
01:57I recently was at the Case Summit, which really heavily focuses on the wealth management space.
02:03Obviously, as you know, we had met there last year as well.
02:06And I was surprised to learn that, you know, while the public markets are shrinking, the private markets are where the opportunity is growing.
02:15So in order to serve investors, really, the opportunity is right here.
02:21Can you talk to us a little bit about that?
02:22Yeah, absolutely.
02:23I mean, I think if you look at the private equity industry really over the last, you know, 20, 30 years, you've seen a tremendous amount of growth amongst the institutional market, right?
02:33So if you look at our limited partner base, what you'll find is that our institutional investors, you know, pension plans, sovereign wealth funds,
02:42they can push 20, 30 percent into private markets.
02:46Families endowments will push sometimes even north of that, 50 to 60 percent.
02:50But the average individual investor is actually still less than 3 percent, right?
02:54And so you've got this difference in terms of how much capital has been allocated by different investor groups.
03:01And I think if you look and ask our institutional investors, why are they so interested in private markets?
03:06The thing that you're hearing, and you've obviously heard this at the Case Conference as well, is this idea that private markets offer really two things.
03:14One, they provide complementary exposure and diversification, and then two, they provide enhanced returns.
03:21So a lot of people are surprised to hear that when you look at public markets versus private markets, to your point,
03:29you look at companies north of 250 million in revenue, 86 percent of those companies are actually private.
03:35Are now private, and it used to be the reverse, right?
03:37Absolutely. You know, if you go back decades, when I started as an analyst in investment banking,
03:45one of the interesting things was when I would go on a road show with the CEO,
03:49what you would hear from them is they really wanted to just go public, right?
03:53That was kind of the I made it type moment.
03:56And part of the reason for that was back then, the public markets were the only market big enough to actually fund the growth for a number of these companies.
04:05But today, when we're meeting CEOs, it's not really about the source of capital.
04:09It's not about public versus private.
04:11It's really about wanting to build a great business.
04:13That's what's on CEOs' minds today.
04:16And sometimes the private markets are wonderful for that.
04:18Sometimes the public markets can be.
04:19But that change in mindset, I think, is a real big shift that's happened in the past, you know, 20, 25 years.
04:24What are some of the other shifts that have happened since, again, we mentioned that you've been within this private equity firm,
04:32but now democratizing alternatives is like the in vogue trend, right?
04:39So now as the entire industry is moving in this direction, you're coming at it from such a unique perspective
04:44because you've been in the private markets for the majority of your career.
04:48So a few things.
04:51We've been focused on this wealth management segment for a long time now.
04:54So we actually launched our private wealth business back in 2011.
04:58You know, Steve Schwarzman had the foresight of seeing this change coming.
05:02And, you know, it's interesting.
05:04You know, when we launched it, it was one distribution partner for $10 billion in one channel.
05:10That was our entire private wealth business.
05:12You look at that today.
05:13It's $290 billion of capital in the private wealth channel.
05:18300 investment professionals.
05:20And importantly, it's not just a sales function.
05:22Like this, we built this out to really be an end-to-end offering to help our distribution partners,
05:29our financial advisors, our clients understand the asset class.
05:33Because I think one of the things that people forget is how early we really are in this.
05:38You know, I mentioned that less than 3% in alternatives for individual investors.
05:42It requires a tremendous amount of education in order for the market to really understand private markets.
05:49And we've been at the forefront of that for the past, you know, 14 years, really driving a lot of it.
05:54So what do you mean by that, with education?
05:57Like what are some of the efforts that Blackstone has undertaken?
06:00So with your existing investors and prospective investors or white papers, walk us through some of that, like, educational process.
06:07So, you know, one of the big things we started doing many years ago is we introduced something called Blackstone University.
06:12And that's an initiative that we have that allows the financial advisor community and the wealth management community,
06:19and in many cases, actually, a number of end clients, to come to Blackstone and understand all of our products
06:27and hear from our business leaders to understand what are we doing in private markets, how are we approaching that,
06:32how is Blackstone approaching it perhaps differently than others.
06:34But there's a big focus on explaining to individual investors and the wealth management community
06:40why having private equity or private markets in general is, as part of an investor portfolio, is so important.
06:47And so that's the type of thing that we tend to do with folks.
06:51So looking now over the next five to ten years, how do you see the market for individual access to private equity evolving?
07:00So we think we're part, we're at the early innings of a really big secular shift, a megatrend that's going to be happening
07:08as these investors move from 3% allocations to something a lot higher.
07:13And one of the big changes that's doing that is the advent of these perpetual capital vehicles that are now coming onto the market.
07:20Or like permanent capital, right?
07:22Permanent capital, exactly, right?
07:23So the historical approach for private markets was really in these drawdown structures,
07:29which were created for the benefit of institutional investors.
07:32However, they have a lot of friction associated with them.
07:34There's very little liquidity that comes in these drawdown structures.
07:38Perfectly suited for institutions, but a little harder for individual investors.
07:41And, you know, we started opening up this asset class with these perpetual structures that provide periodic liquidity
07:49and monthly subscriptions with the real estate asset class.
07:52We then did that with the credit asset class.
07:55We've done it in private equity.
07:56We've done it in infrastructure.
07:57And we think there's a number of these products that will come to market that will allow individual investors
08:03much easier access into these portfolios.
08:07And so we do think that that's going to be a really, really big shift over the next five to ten years
08:12as you see this portion of the market get the benefit of increased diversification and enhanced returns.
08:19And so you mentioned liquidity.
08:21And also I'm curious about flexibility.
08:24So liquidity and flexibility are key for individual investors.
08:27So, like, how does that factor in?
08:29Are, are, are, is the tide turning?
08:32Are things getting a little bit more just, like, easier for an individual investor to dabble in this market
08:39and, you know, be able to jump out if they feel, you know, they need to make that decision or?
08:45Yeah.
08:46I think that the structures provide a tremendous amount of flexibility.
08:48I think we are very focused on thinking about these products as long-term in nature
08:54and the ability to create liquidity is really much more of a feature that allows investors to rebalance portfolios.
09:01So if you think about historically the way portfolios have been designed,
09:06wealth management used to talk about things in terms of an equity allocation, a fixed income allocation,
09:12and an alts allocation.
09:13And the alts allocation was put differently because, to your point,
09:16the liquidity profile in alts was very different.
09:19I think with the advent of these products, individual investors now get to think about them a little differently.
09:24And the big changing that we're seeing in the market is that financial advisors will actually talk to their clients about saying,
09:30well, how much equity do you think you should have?
09:32How much fixed income should you have?
09:33And then how much do you want public?
09:34How much do you want private?
09:36Right.
09:36That's a fundamentally different way to engage with clients.
09:40And it opens up the market for individual investors to express investment ideas in a variety of different,
09:47more strategies than they had historically.
09:48One of the interesting things that I was hearing from some other industry professionals also was that
09:54people have more flexibility to invest in areas that they're personally passionate about through the private markets,
10:02whether that's women in sports or sustainable investing.
10:05I mean, it's a much broader way to think about alternatives as an entire investment class, right?
10:13Absolutely.
10:14I mean, the private markets are just immense in size, right?
10:17I mean, if you, going back to what I was saying earlier, 86 percent of companies greater than 250 million revenue are private.
10:23But, you know, so much of what drives the global economy is happening in private markets.
10:28And as more and more managers bring tailored products to the individual investor, to your point,
10:35it does allow them to have exposure to areas that they might otherwise not be able to get exposure to.
10:40And so what are some of the ripple effects of all of this on the overall wealth management industry that you're predicting?
10:47Well, I think increasingly we will see that 3 percent that I was talking about allocation go up meaningfully, right?
10:55So I think you will find that individual investors are likely to start viewing these categories as much more accessible
11:03and will start allocating more capital towards it.
11:06We do think there's likely to be an approach where a lot of individual investors will take almost a core satellite type approach to investing,
11:14where these perpetual products can provide a nice steady base of capital and exposure
11:20that allows them to stay invested in private markets and compound their return in private markets.
11:24And then complement that with satellite offerings, where if they want that sports exposure, they can go get it.
11:30Or if they want sustainability, they can go get it.
11:32But these perpetual capital vehicles, if built correctly, can provide a lot of breadth, a lot of diversification,
11:38and importantly, attractive returns.
11:40That's great. It sounds like there's a lot of customization opportunities where appropriate.
11:44Absolutely.
11:45All right. Awesome.
11:46So drilling down a little bit more specifically into some of Blackstone's investments.
11:50Since Blackstone has invested in the consumer space in brands like Jersey Mike's
11:55and Seven Brew Show, which throws strong conviction in the consumer franchise space,
12:01what makes these businesses attractive in the current market when there's so much geopolitical uncertainty,
12:09tariffs, et cetera, that are impacting import-export prices?
12:13Yeah. Well, it's less about what makes them attractive, I think, today.
12:18What we're really fundamentally attracted to is the underlying business model, right?
12:23So franchisor business models are attractive for a few reasons.
12:26If you find the right concept that has a lot of white space for growth,
12:31they can be tremendously fast-growing.
12:33Because a franchisee is actually responsible for opening new stores,
12:37funding the capex associated with them, and hiring the people,
12:40these tend to be very high margin, very low capex, and very high free cash flow.
12:44So those are all wonderful words.
12:47Those are ding, ding, ding, good things to a private equity firm operator, right?
12:51Absolutely.
12:51And so when we look at that, now you have to find the right concept,
12:54but when we look at that, that gets very exciting.
12:56Those are business models that we think can be sustainable,
12:59that can grow through cycles, frankly, because if you're opening enough store counts as a franchisor,
13:05your revenue model is based on royalty of overall revenue, right?
13:09And so we like that.
13:11We have a long history in doing this, right?
13:13Even if you go back to 2007 and our Hilton investment was a franchise investment.
13:18If you think about our recent investments like ServPro,
13:21we have a significant number of these, and we've actually done quite well with them.
13:25One of the things that we can do really well is help our management teams think about where to open new store counts.
13:34So we have a data science team at Blackstone, quite large, that we keep at the firm,
13:39and they work with our management team.
13:40So example of Jersey Mike's and Seven Brew Coffee for both of them,
13:44we actually looked at the existing store counts for all of the chains that existed.
13:48We looked at the margins of the SKUs that we're selling.
13:52We looked at the demographics of the stores around those locations.
13:54And then we mapped that across the United States to figure out where should we be opening stores to drive value.
14:00And so when we can bring those sort of resources to bear to drive our investments,
14:05tied and combined with these really fantastic business models, that tends to be a win-win for us.
14:10And you guys must be doing several things, right?
14:13But one especially because I think we recently featured the founder of Jersey Mike's on the cover of Forbes as well.
14:19So you guys are also a huge global player in the financial markets.
14:24Where are you seeing opportunity outside of the U.S. right now?
14:28Yeah, I would highlight two markets for you.
14:30One, India.
14:32So India has actually been our best performing market for private equity in the last decade.
14:38We think that you have a very pro-business government.
14:42They're investing heavily in infrastructure.
14:44And we think focusing on investment opportunities that are service-oriented towards the domestic economy,
14:50really servicing that rising middle class is a very attractive place to play.
14:55And we think it's going to continue to drive investment opportunities going forward.
14:58Across which industries specifically?
15:00Like infrastructure?
15:01Well, certainly some on the infrastructure side, some on the real estate side, but also just on the services side.
15:08When you have a middle class that's generating as much wealth as the Indian economy is starting to generate for its middle class,
15:14any services that are really focused on trying to cater to that group are areas that we're really spending time on.
15:23So financial services is a big area that we spent meaningful time on.
15:27Real estate, as you mentioned earlier, as well.
15:28Micro-lending, right?
15:30Micro-lending can be in the context of larger financial institutions.
15:36A piece of that could potentially be micro-lending as well.
15:39Any other regions or markets that are particularly attractive right now?
15:42The second one I would highlight is actually Japan.
15:45And so that economy has moved from really from a saver economy to a growing economy.
15:51Reinvesting rates are growing.
15:53You now at least have inflation back into it.
15:55But interestingly, there's just a lot of trapped value in Japan.
15:58There hasn't been a lot of foreign direct investment into the country.
16:02And so as we're getting in there, what we're finding is assets that can be repurposed, reimagined, reinvigorated for growth.
16:10And there's a tremendous amount of value add that we can add in that market.
16:14And so Japan and India would be the two international markets I would highlight as being attractive for us right now.
16:20Interesting.
16:20And so as somebody who has helped build Blackstone's businesses from the inside out,
16:25what would you say it takes to be entrepreneurial within a large institutional organization?
16:31It's a great question.
16:32I think it actually starts with the tone from the top.
16:37Steve Schwartzman and John Gray have really instilled an entrepreneurial spirit at the firm.
16:44I mean, Steve started Blackstone with $400,000 with Pete Peterson back in 1985.
16:49We have our 40-year anniversary this year.
16:53But Steve's a founder.
16:55And Steve's an entrepreneur.
16:57And he really pushes that approach internally.
17:01So the first thing I would say is we've created an environment where being an entrepreneur is welcomed,
17:06where being focused on how do we drive growth, not thinking about what did we do in the last five years,
17:12but what can we do in the next five.
17:13That's just the way the entire ethos of the place works, right?
17:16And so when you have an organization as large as we are,
17:20but you have a group of leaders within it kind of top to bottom that are all really driving for growth
17:26and thinking about what more can we be doing, it creates a really attractive environment for it.
17:32And then the other thing is you have to hire people that think that way, right?
17:35You have to really focus on individuals that want to grow in that way,
17:42that want to be entrepreneurial, that are going to thrive in those markets.
17:45But if you hire the right people and you set the right tone and culture, that really drives a lot of it.
17:49And what are some of, you know, the Iconoclast audience is all about titans of industry, disruptors,
17:56people who are aspirational and want to be at the top of their field like yourself
18:00and working at organizations like Blackstone or founding the next Blackstone.
18:04So tell us more on the leadership front.
18:07What are some of the other biggest leadership lessons that you've learned throughout your career
18:11or also maybe that you've observed from Steve, John, and other leaders at the firm?
18:16So what I would say to that is, and it gets back to your scale point,
18:21in order to scale a business to the size that we've gotten
18:26and to continue scaling it from this point forward,
18:29I think the biggest leadership lesson I've learned from watching Steve and John
18:32would be just the focus on culture.
18:36It is a top-of-mind management committee focus for us.
18:43It's something that we spend a lot of time making sure we cultivate,
18:46and we make sure that each person lives it and breathes it.
18:48So as an example to the Iconoclast watchers and listeners right now,
18:53like the Blackstone website has a tremendous amount of information on our culture.
18:57And one of the things that's on there,
19:00I think it might be one of the first or second things on there,
19:02is this idea of relentless pursuit of excellence, right?
19:06And we built a business where we expect everyone to have this kind of relentless pursuit of excellence.
19:13If we're going to launch a new business, if we're going to work on a new initiative,
19:17the expectation internally is that we're going to do it to the highest degree,
19:22with the highest integrity, and we're going to try to be the best in the market.
19:25And that is not something that happens overnight.
19:29It's a culture that's built over decades,
19:31and it's also a culture that needs to be continuously invested in, right?
19:34It's something that our business leaders and our management at the firm
19:38is spending a lot of time really driving.
19:40And so I'd say the big lesson I've got is that if you want to scale businesses at any level,
19:47small businesses, large businesses, hyper-growth businesses,
19:50getting the culture right is absolutely critical.
19:54All right.
19:54So final question.
19:55What most excites you about this evolution across the democratization of alts
20:01and the wealth space over the next five to ten years?
20:05It's how early we are, right?
20:08I mean, we are in the early innings of investors on the individual side
20:14starting to allocate their capital towards private markets.
20:17And I think the amount of innovation that is going to happen in the industry
20:21over the next three, five, ten years to really build products
20:25that are best suited for that individual investor
20:28is incredibly, incredibly exciting.
20:31And with our private wealth team,
20:33for me to get the opportunity to be in an organization
20:36that's going to be at the forefront of driving a lot of that change
20:38is really exciting.
20:40I think we're going to be very pleasantly surprised over the next ten years
20:45as an industry about how much innovation can come out of this.
20:49It's early, so it's exciting.
20:51Well, that's definitely a bright spot in the markets today.
20:55So Viral Patel, CEO of Blackstone Private Equity Strategies,
20:59thank you so much for joining us.
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