With companies in industries from health care to battery storage in its portfolio, Blackstone Group Inc.’s massive buyout unit has a unique view into the economy. Soon it might offer peeks to outsiders willing to pay.
The largest U.S. manager of private equity funds is preparing to package and sell data from companies it acquires in future deals, turning insights that Wall Street powerhouses usually guard closely into a new revenue stream. Customers could range from hedge funds in search of a trading edge to corporations seeking to hone their own operations.
The plan was disclosed in filings with the Securities and Exchange Commission. The effort is “exploratory,” said spokesman Matthew Anderson, adding that “nothing has been sold on behalf of our portfolio companies or Blackstone.” All data the firm’s holdings generate “is fully anonymized and includes best-in-class privacy and compliance protections,” he said.
Fund companies industrywide are expanding beyond their traditional business models in search of fresh income sources. Some are advising institutions on tax-efficient investing, while others are licensing technology to fellow money managers, according to Benjamin Phillips, chief strategist at Deloitte Consulting LLP’s Casey Quirk unit.
“Asset managers are struggling with, ‘How can we monetize our intellectual property differently?’” said Phillips, whose firm consults with investment advisers. “Are there different ways to repackage that lightning in a bottle?”
The fund industry is increasingly using alternative data, a concept encompassing such ideas as combing through anonymous credit-card receipts to glean trends. The practice has been employed mostly by hedge funds such as Steve Cohen’s Point72 Asset Management, which said last year it successfully shorted Dave & Buster’s Entertainment Inc. by using geo-location and credit-card information to determine that the chain was losing business to rival venue Topgolf.
Buyout firms are catching up, driven by the companies they own, said Emmett Kilduff, founder of Eagle Alpha in Dublin, which helps asset managers and others make data-driven decisions.
“Firms that have been using it realize there is another opportunity on the supply side, primarily because it is a new revenue stream for their portfolio companies,” Kilduff said.
Blackstone, which holds stakes in about 97 companies through its private equity funds, ramped up its data push in 2015 by hiring Matthew Katz, who helped build a similar business at Point72. Katz’s data-science team at Blackstone originally focused on internal applications, such as helping portfolio managers assess potential acquisitions and providing companies it owns insights to boost sales.
The firm already has information sharing and usage agreements in place that permit it to obtain data from portfolio companies owned by its funds, according to a regulatory filing. Data relating to business operations, trends, budgets, customers and other metrics can potentially help Blackstone anticipate macroeconomic trends and execute investment strategies in other parts of the firm.
Blackstone also already has the ability to sell data from some of its investments outside of the buyout realm, according to the New York-based firm, the world’s largest alternative asset manager. However, the limited partnership agreements for its prior buyout funds, as well as its current private equity flagship, don’t provide the leeway to sell the data their portfolio companies generate.
This year, Blackstone units disclosed that the firm may provide its future acquisitions data-management services, described as gathering, processing, curating and transforming information “for monetization through licensing or sale arrangements with third parties.”
In turn, companies would pay Blackstone a share of the revenue generated, as well as cost reimbursement, according to the filings. No payments would be shared with fund investors, nor used to offset management fees.
Data sales prospects might be a factor in future deals, the disclosures show.
“The potential receipt of such compensation,” according to the filings, could create incentives for the firm to bet on “entities with a significant amount of data that it might otherwise not have invested in.”
If the firm goes ahead with the plan, Anderson said, “It would be to benefit our portfolio companies and limited partners’ investment performance — with Blackstone only receiving ordinary course, market-rate fees for the services it may provide.