REUTERS/China Daily
Public pensions and sovereign wealth funds are increasingly reducing the number of private-equity firms they park their cash with.
Steve Schwarzman, CEO of the private-equity giant Blackstone Group, isn't fazed.
"They're getting rid of their underperformers," Schwarzman told Business Insider.
It will cause a lot of pain over the next decade in the industry, as there are widespread expectations that numerous firms will have to shut down if they are unable to raise new funds.
"This trend in no way surprises me," Schwarzman said.
"As private equity started to become an asset class, individual institutions appeared from the GP side to be more in the sampling mode.
"They gave money to a lot of different managers without necessarily understanding what the performance was, or was likely to be."
Sampling modeThis shouldn't be conflated with how much investors in private-equity firms are spending — that figure has steadily risen. That has helped Blackstone, which has boosted its assets under management nearly four-fold in the past eight years.
That is due in part to Blackstone's performance, which has outstripped that of most of its competitors. But not everyone can boast regular double-digit internal rate of returns as Schwarzman can.
"They're increasing their exposure to the asset class, which on balance has been their best asset class," Schwarzman said.
"They're concentrating more money in fewer hands."
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