Blackstone Boosts Hedge Fund Seeding Power

Blackstone Inc. is integrating its unit that supports startup hedge funds into its larger Absolute Return business, a strategic move designed to bolster its competitive edge in the industry. The firm's Strategic Alliance Fund will now operate within the Absolute Return platform, enhancing its capacity to compete with major players.

This restructuring enables Blackstone to combine capital from SAF, Absolute Return, and its family office channels. Consequently, new investment firms can now receive between approximately $250 million and $450 million, a significant increase from the typical $150 million SAF previously offered. This greater scale offers potential fee advantages and increased support for sought-after trading talent.

David Ben-Ur, chief investment officer of Blackstone's Absolute Return platform, stated that operating as a single platform enhances efficiency for both managers and clients. It allows for a more coordinated approach to offering capital, long-term partnerships, and distribution services.

The firm's strategy is a response to the growing prevalence of separately managed accounts, where substantial hedge funds allocate billions to external traders. This trend allows these larger funds to diversify their investment strategies while simultaneously making it more challenging for smaller backers to enter the market.

Blackstone has already begun executing these hybrid funding deals. For instance, Jonathan Xiong's Arrowpoint Investment Partners received a seed investment alongside roughly $300 million from Absolute Return, totaling about $450 million. Covara Capital also benefited from similar mixed capital arrangements.

The future of SAF will be determined after its current fund is fully invested, with approximately $500 million remaining to be allocated. Blackstone is actively in discussions with various entities to deploy these remaining funds.