Blackstone’s Gray: DC money will first go to secondaries, private real estate

In the firm’s Q2 earnings call, Jonathan Gray pointed out where in private markets he thinks investment from defined contribution benefit plans will be directed to first.

Blackstone president and chief operating officer Jonathan Gray believes target date funds will be the go-to vehicle for accessing 401(k) money, with opportunities in secondaries and real estate markets.

Jon Gray_Blackstone
Gray: DC money will flow to secondaries

“I think it’s unlikely you’re going to see direct investment,” Gray said on the firm’s Q2 earnings call last month. “I think target date funds run by plan sponsors is the most likely vehicle for accessing 401(k) money.”

He added: “Real estate is probably the easiest place to start, because there is some real estate already in the 401(k) market.”

Gray said DC money will also be directed to the secondaries market, due to its diversification and relative liquidity.

“Over time, hopefully we’ll move to traditional private equity,” he said.

Gray declined to comment on whether the firm had begun talks with large or small plan sponsors.

Gray also remarked that alternative investment firms such as Blackstone are “really an important component in terms of providing retirement security to many Americans and many folks around the world”.

“This is a very interesting opportunity for us in our industry going forward,” he said. “There are obviously retirement savings challenges for Americans, and we think this decision by the [Department of Labor] was a step in the right direction for sure, because of the strong performance of alternatives.”

The road to the first 401(k) client will be long, Gray said.

“We think it’s a long journey because there’s a system in place and we have to work with folks over time to get them to move in this direction. So, we see it as a real opportunity but something that will take time to emerge.”

Over the last two months Blackstone’s Strategic Partners unit has held final closes on its real estate and infrastructure secondaries vehicles, amassing $1.9 billion and $3.75 billion respectively.

Read more about private equity and defined contribution pensions on sister title Private Equity International.