A move into private assets by retail investors represents a $1.2tn (£977bn) prize for asset managers – but difficulties in finding the right vehicles have inhibited the rush to invest.

However, this may be about to change.

Alternative investment group Blackstone has received authorisation to launch a private credit fund in Europe aimed at individual investors.

The Blackstone European Private Credit fund has been registered in Luxembourg as a Sicav and will operate as an open-ended perpetual vehicle. This means that investors will be able to invest on an ongoing basis and will receive distributions.

It’s a move away from the traditional private credit model with funds typically structured as closed-ended vehicles with long lock-ups and a 10-year life.

The fund, first reported by Bloomberg, will comply with UCI Part II rules, meaning it is an alternative investment fund that can invest in all types of assets and be sold to retail investors from Europe, the Middle East and Asia.

How the strategy will be managed and how it will provide liquidity in the open-ended format for what are essentially illiquid assets has yet to be disclosed. Blackstone declined to comment.

Blackstone has form here in the shape of the Blackstone Private Credit (BCRED) fund, a perpetual closed-end fund open to US retail investors.

This structure allows monthly distributions and subscriptions and investors can redeem quarterly. However, redemptions are capped at 5% of net asset value per quarter.

Citywire understands that the European fund is expected to have a similar structure and will aim to pay regular income via monthly dividends. It is also expected to be invested in direct lending with a small sleeve in leveraged loans for liquidity purposes.

As investors will be able to put capital into the fund on an ongoing basis, unlike traditional models where the fund manager makes capital calls at certain periods to fund deals, the strategy will need to ensure that it can deploy the capital as soon as possible to make sure there is no cash drag on the portfolio.

If the firm is successful in creating a fund that offers the benefit of private credit returns but with some liquidity, this could drive demand and act as a model for other asset managers.

Blackstone’s retail charge

Blackstone has been one of the early movers in private markets to distribute its products to individual clients and has been doing so for about a decade, mainly in the US.

It has three dedicated retail perpetual vehicles – BCRED, BREIT (a US commercial real estate fund) and BEPIF, a real estate fund in Europe, pulling in an impressive $4bn-5bn of equity capital between them every month. In 2021 it raised $50bn of capital from retail clients globally across all strategies according to its full-year results.

While much of these assets and the private wealth business have been focused in the US, Blackstone has also been expanding in Europe. Last year the firm set up divisions in Paris and Zurich and made several appointments to expand its relationships with wealth managers in the two countries, launching BEPIF with a minimum investment of €25,000 (£21,500).

Why is this fund important?

Blackstone is not the only alternative asset manager to explore new ways to open up private assets to individual investors. But at the moment, it looks like it’s the first one to receive authorisation for a private credit fund with an open-ended Sicav structure.

This could be the start of a wave of fund launches in the European market.

Others are already following suit. Invesco’s real-estate arm recently announced that it was launching an open-ended private debt fund investing across Europe and the UK and aiming to raise €1bn from investors, although as a reserved alternative investment fund, it can only be marketed to professional clients and not retail investors.

Apollo Global Management, another giant in the alts space also has plans. Stephanie Drescher, the firm’s chief client and product development officer told Citywire recently it was looking into several different structures for its new products, like those authorised under the UCI Part II rules or European long-term investment funds.

Battle for the wealth prize

Wealth management clients are viewed as the next frontier for many private market managers, offering a far bigger pool of capital collectively than the institutional market. There is a race to attract these clients with innovative new products before anyone else.

A report published by Boston Consulting Group and iCapital earlier this year found individual investors are expected to more than double their commitment to private market funds by 2025. This would create a $1.2tn opportunity for fund managers. Overall, their allocation to alternatives is set to increase by 70% by 2025 (see below).

While Blackstone’s new fund may finally crack the question of getting retail investors into private assets, some have asked whether it may be dangerous to get less sophisticated investors investing in things they don’t completely understand.

However, the potential for higher returns continues to draw interest from across the investor spectrum.

In a recent Citywire Amplify poll, 78% of respondents agreed asset managers should be expanding private assets operations beyond institutional investors.