The co-head of Blackstone’s large hedge fund unit plans to leave the company as the private equity giant seeks higher returns and faster growth for the business.
Blackstone veteran John McCormick told the company last week he had decided to step down, the company said. The Wall Street Journal. His co-head, former Brown University head of funding and hedge fund manager Joseph Dowling, who joined the firm in January, will become the sole head of Blackstone Alternative Asset Management, the firm. the world’s largest hedge fund business.
People close to McCormick, 53, said he will likely pursue opportunities in the academic field in the future. A spokesman for Blackstone said he would “continue as necessary to ensure a smooth transition over the next several months”.
The move is sure to resonate in the hedge fund industry, given the unit’s strength and influence. BAAM, which also buys shares in private equity firms, backs new hedge funds and makes its own investments, manages $81 billion.
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The fund’s $50 billion-plus core strategy, which has posted extremely low returns for years, reflects a prudent strategy that has largely caused it to miss the rich returns many hedge funds record when invest in fast-growing public and private companies. Blackstone is now trying to increase that return, part of a larger investment in growth in recent years.
Blackstone in 2018 set a target of reaching $1 billion in assets by 2026 and has achieved that goal due to explosive growth in the private equity, real estate and credit businesses. The company managed $731 billion at the end of September, up 60% from the same period in 2018. BAAM is Blackstone’s smallest unit and its assets have remained flat for the period, although it has since posted strong profits so far this year, with earnings distribution growing by 50% in the first three quarters of the year compared to the same period in 2020.
In an interview with Magazine, Blackstone Chairman, Jonathan Grey, praised McCormick as a strong business builder and said he did not want him to leave. He also said the hedge fund business could be significantly larger. To that end, he and Blackstone CEO Stephen Schwarzman tasked Dowling with driving the returns of its BAAM hedge fund product, or BPS, and continuing to expand its riskier offerings. Gray also said he wants to increase BAAM’s direct investment capabilities.
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Over the past few months, Schwarzman, who in recent years has withdrawn some of his personal funds from the BAAM fund, and Gray have each invested $100 million in the unit’s products.
“Steve has been a significant investor in BAAM for the past 25 years and continues to be,” Blackstone said in a statement.
Under McCormick’s watch, BAAM has expanded beyond buying shares in hedge fund companies and launching higher-margin products. McCormick, who joined Blackstone 17 years ago and became head of BAAM in 2018, also helped launch his first alternative mutual fund in 2004 and started its data science initiative. company.
The pace of change at BAAM has been rapid since Dowling joined, becoming the first outsider to run the business since its founding in 1990. Gray said Dowling’s record is at Brown, whose talent is The property under his supervision invested heavily in hedge funds and was a top company, which caught his attention. Dowling made big bets on Brown, including on growth managers, and used his Rolodex to access proprietary funds and club deals.
At Blackstone, he is known for making quick decisions based on his own instincts, analysis and network. He’s brought a new focus on stocks and focused, themed bets, and retooled BAAM’s due diligence process to give him an edge in manager selection.
A person familiar with the matter said that in BPS’s core hedge fund strategy, Dowling reduced the credit ratio to 20% and increased the equity risk ratio to 30%.
One of Dowling’s most famous initiatives is the launch of a $2 billion tech cross-fund called Horizon, which invests in fast-growing companies right before they go public or at the time they do so. Horizon has no limits on volatility, which means it can have huge profits and losses.
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Dowling had to adjust to Blackstone’s culture after years of running his own hedge fund and then Brown’s lean funding staff. As soon as he joined, Gray and others had to ask him to respond to emails more quickly, people familiar with the matter said. McCormick is a former consultant with McKinsey & Co., with a long history in Blackstone culture, who is seen as an internal counterweight to Dowling.
There has been significant turnover at the senior levels of BAAM. About 70% of the BAAM team buying shares in alternative investment firms has left this year, people familiar with the business said.
Some customers have requested org charts to help track revenue, the people said.
“Always, when you have an organization and you’re trying to improve performance and you bring in an outsider, there’s going to be some people who just don’t fit in with that,” Gray said. “I looked up the transcript and so far, the transcript is going well.”
He added: “Joe is a world-class investor and leader who has had a tremendous impact. We strongly believe in future business. ”
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Blackstone said on its Q3 earnings call last week that it expected to complete raising about $5.5 billion for a second equity fund before the end of the year, beating its $4 billion target. la.
Dowling’s quick rework of BPS’s group of managers contributed to its strongest returns in years, Gray said, with its key performance index up 13.3 percent over the period. 12 months ended September, compared with 8.9% for the HFRX Global Hedge Returns index. BPS also made money in September, when the S&P fell 5%, Blackstone said on the earnings call.
Write to Juliet Chung at [email protected]Miriam Gottfried at [email protected] and Dawn Lim at [email protected]
This article was published by Dow Jones Newswires
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