Blackstone’s Gray: I’m a big fan of secondaries

The secondaries market is an attractive strategy that still has plenty of room for growth, according to Blackstone‘s president and chief operating officer.

“I’m a big fan of secondaries,” Jonathan Gray told Secondaries Investor in an interview in London. When the private equity giant bought Strategic Partners from Credit Suisse in 2013 the secondaries unit was a roughly $9 billion business. Today, it is around a $35 billion AUM, he said.

Alternatives assets under management are growing at around 8 to 10 percent a year and there is “very little liquidity in that space”, Gray said. There are still only a relatively small number of secondaries buyers and the penetration of the strategy needs to grow, he added.

Asked how big the Strategic Partners business could become in terms of assets, Gray said: “A lot bigger. I think it could be much, much larger.”

Strategic Partners was Blackstone’s second-highest performing strategy last year on a gross basis, delivering a 17 percent return, according to the firm’s full year results. Only opportunistic real estate delivered a higher return at 17.6 percent.

Strategic Partners’ $11.1 billion Fund VIII, which held its final close in July, is 50 percent invested, Gray said. The unit is also making headway raising its third infrastructure secondaries fund, having collected $862 million as of the end of last year, according to the full year results report.

The group’s flagship private equity secondaries funds have almost tripled in size since the 2013 acquisition. The unit has also raised real estate-focused secondaries funds, its latest having collected at least $787.23 million so far, according to Secondaries Investor data.

Speaking to Secondaries Investor in November, Strategic Partners’ global head Verdun Perry said the amount of unrealised value that trades on the secondaries market per year is about 2.5 percent of the overall primary market, meaning there is room for continued growth.

He had added that the biggest threat to this growth would be a pullback.

“Typically, the bid-ask spread widens and volumes decline during downturns. It’s a short-term threat during downturns, but the volume decline usually doesn’t last long. I think over the long term this market will continue to grow significantly.”

– Toby Mitchenall contributed to this report.