Why ETFs prefer traditional over alternative asset managers
The Blackstone Group: Investing with an alternative giant (Part 15 of 15)
Leverage and flexibility
Blackstone Group’s (BX) stock has appreciated by 30% CAGR (compound annual growth rate) over the past five years. The company has also rewarded its unitholders with regular dividends fetching a 5%–7% yield during the same period. The company is more than 80% owned by pension funds, corporates, and institutions.
ETFs, on the other hand, prefer traditional asset managers over alternative asset managers. The primary reasons for this are that alternative asset managers offer less flexibility to alter holdings and may see leverage impacted during downturns. As well, bigger alternative asset managers have gone public with their equities as recently as between 2007 and 2010.
Increase in ETF options
In 2011, ETFs started replicating the performance of alternative managers. Major ETFs in the segment include the IQ Hedge MultiIQ Hedge Multi-Strategy Tracker ETF (QAI) and the SPDR SSgA Multi-Asset Real Return ETF (RLY).
Among alternative asset managers, Blackstone is most favored because of its diversified product portfolio and scale of global operations. Theme-based ETFs such as the iShares S&P Listed Private Equity (IPRV) from BlackRock has invested 8.2% of its funds in Blackstone, slightly more than holdings in KKR & Co. (KKR) and 3i Group.
Other major ETFs with exposure to Blackstone equity are the PowerShares KBW High Dividend Yield Financial Portfolio (KBWD), the Guggenheim Mid-Cap Core ETF (CZA), and the PowerShares Global listed Private Equity Portfolio (PSP). These ETFs prefer Blackstone equity over other alternative asset managers including the Carlyle Group (CG) and Apollo Global Management (APO). Generally speaking, the Financial Select Sector SPDR Fund (XLF) holds very few alternative asset managers, preferring traditional asset managers instead.
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