Bloomberg Hedge Fund Summit 2012 now features a talk with J. Tomilson Hill, Vice Chairman, The Blackstone Group; President and CEO, The Blackstone Group L.P. (NYSE:BX) Alternative Asset Management (BAAM). He manages $46 billion, and he advises on $20 billion more in assets.
12:07PM EST: Tomilson says that many big investors could be leaving industry because the equity markets are much more difficult. In the 1990s, with the higher equity returns, a long short portfolio was easier to manage.
12:08: Are products switching from Wall Street to small hedge funds? Tomilson says that anytime there are significant dislocations, the industry changes in various ways. The Blackstone Group L.P. (NYSE:BX) is buying foreclosed homes and renting them out. This opportunity was not available several years ago.
12:12: Money keeps coming into hedge funds from the institutional sector, as there is more momentum to invest. He thinks that the hedge fund space could reach $5 trillion in a few years. He notes that hedge funds had AUM of $40 billion only two decades ago. Tomilson notes that his investors do not want a negative real return on treasuries. Investors want high single digit risk adjusted returns, some are willing to take more risk.
12:14: He notes what other speakers have said, that banks are cleaning up their balance sheets ahead of Basel III. There is much merger arbitrage to do with these assets. He is finding value in loans and distressed. Specifically, the shipping industry loans are attractive.
12:16: Tomilson was formerly at Lehman Brothers and so was CEO of The Blackstone Group L.P. (NYSE:BX), Steve Schwarzman. There is a lot of firm money in Blackstone, so there is an incentive for managers to produce great risk adjusted returns.
12:18: He notes that he asked Blackstone analysts during the financial crisis to find single name subprime shorts. Blackstone put on a two billion notional short position on subprime, and a large short on Lehman as well.
12:20: He notes about the indices which Blackstone launched for institutional investors, and were able to beat the benchmark, and produce higher alpha. Blackstone looks always to make a customized strategy for clients.
12:23: Blackstone has over $3 billion in its seed platform, and invests $100-$150 million in most of these funds.