Viral Patel, CEO of Blackstone Private Equity Strategies (BXPE), joined Keith Black, Managing Director of RIA Channel, at the CAIS Summit, to discuss the private equity investment landscape.
Over the last 30 years, the number of publicly traded companies in the US has declined. In order to have broader diversification across the US equity market, investors should consider investing in private equity. Today, 86% of US companies with over $250 million in revenue are privately held. Patel notes that, over long periods of time, private equity has outperformed publicly traded US equity by over 500 basis points annually.
Pension plans may allocate 20% to 30% to alternative investments, while allocations of endowment funds may reach 50% to 60%. With allocations averaging 3%, individual investors are likely to substantially increase exposure to alternative investments in the coming years. Each individual has unique circumstances and liquidity needs, so it is unlikely that the allocation of the average individual investor will reach a 20% allocation to alternative investments.
When evaluating a private equity manager, investors should consider the diversification of the firm and its funds. Blackstone diversifies across buyouts, growth equity, life sciences, opportunistic, and secondaries.
The US economy has been resilient after the sharp rate increases experienced in 2022. Inflation has been declining, while revenues of both public and private companies continue to grow. It is easier to make new investments when there is greater stability in the macroeconomic environment. The increasing valuations in the public equity market are concentrated in a small number of large cap technology companies. More reasonable valuations can be found in mid cap companies and sectors beyond technology.
When considering investment themes, Blackstone’s strongest conviction is in artificial intelligence and the need for data centers and electricity to power those computing needs. Beyond data centers, the demand for energy continues to grow in the broad economy, in applications such as electric vehicles and the reshoring of manufacturing. Blackstone is investing in data centers, electrical generation, transmission, storage, and renewable energy.
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