Zachary Scheidt

How to Invest in Private Equity Through Public Markets

While BDC's offer exposure in areas that most individual investors do not typically have access to, I'm actually more interested in private equity COMPANIES who have the benefit of running these private equity funds and collecting on the profit.

For instance, Blackstone (zachstocks.com/2009/08.../) has several new funds including a Yuan denominated fund and manages billions in AUM and collects management fees on these funds. The management fees are nice, but the real money is made through incentive allocations. These companies usually get to keep 20% of the profits of their investors. The stocks have been hit hard over the last 2 years as incentive allocations have been low but the environment is changing.

At this point, Blackstone has plenty of dry powder (and has had the cash for the last 9 months) to put to work at depressed prices. As some markets recover, the company is able to build those incentive fees and investors should see the stock rise quickly. A healthy dividend yield pays you to wait at the same time. So while investing in the individual funds or BDOs could be worthwhile, I think owning the company that manages those funds makes even more sense.

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