Blackstone hedge fund unit bets big on 'under-invested' Asia

From Brown University endowment to the world’s largest alternative manager, Joe Dowling, in an exclusive interview, explains the opportunities he sees in Asia in the new normal of quantitative tightening.
Blackstone hedge fund unit bets big on 'under-invested' Asia

Blackstone’s hedge fund unit, Blackstone Alternative Asset Management (BAAM), is betting big on increased opportunities in Asia for both investments and investor demand and plans to continue adding headcount to the region, its global head told AsianInvestor in an exclusive interview.

Asian asset owner allocation to alternative assets remains well below their American peers despite rising interest in the sector.

Joe Dowling, Blackstone

This - in the different investment paradigm of quantitative tightening and growth uncertainties - leaves room for absolute return strategies, according to Joe Dowling, global head of Blackstone Alternative Asset Management (BAAM).

BAAM is Blackstone’s hedge fund solutions unit and managed $78 billion of assets as at the end of June, across macro, equities, credit and quant investing strategies.


Dowling took the baton in early 2021 from the Brown University endowment where he spent nearly nine years overseeing investment activities.

During his time there, the endowment was transformed into one of the top-performing in the Ivy League beating the average performance of its peers.

The Brown University experience equipped Dowling with essential know-how on asset allocation, manager selection, portfolio construction, risk management, and return enhancement techniques, such as aggressive rebalancing overlays and co-investments.

“They all apply to my job at Blackstone. It’s pretty powerful to get formal training across asset classes,” Dowling told AsianInvestor during his trip to Asia from New York recently.

By the end of June 30, 2022, the endowment managed $6.5 billion in assets, with 43% in private equity and 21% in absolute return. Its 10-year annualised return was 12.3% in the financial year of 2022 compared with 7.5% in 2015.

Compared with the previous period of quantitative easing (QE), Dowling noted that the current QT environment - characterised by historic interest rate hikes, bank retreat, the debt refinancing needs of firms, and flows out of bank deposits to money markets - has created an opportunity for hedge funds to provide absolute returns uncorrelated with equities through strategies like macro, quantitative and certain credit strategies.


Drawing on data from across Blackstone's portfolio companies, he said that while inflation is declining, it remains sticky, implying rates will remain higher for longer in the US. Even if the Federal Reserve pauses or cuts rates, he stressed this would still differ markedly from QE.

Against this backdrop he sees opportunities in international equities and credit, such as first lien debt and collateralized loan obligation (CLO) as it generates equity-like returns.

He is also bullish on emerging markets and Asian equities, which are “very inexpensive”, including areas that BAAM traditionally avoided, such as logistics and digitalisation.

While acknowledging geopolitical tensions surrounding China, Dowling remained optimistic about opportunities in the country, viewing such risks as short-term.

“It's the second-biggest economy in the world. You can’t miss it.”

Despite this he did not reveal China’s position in BAAM’s portfolio, adding that most Blackstone managers in Asia invest across geographies.

He did, however, take note of the cheap valuation of the Chinese equity market, the ongoing opening up of the market post-Covid, and the technological evolution going on, including life sciences, AI, and basic technology.


While alternative assets remain significantly under-invested in Asian asset owners' portfolios, Dowling noted their demand for absolute return strategies is growing.

Bryan Yeo, chief investment officer for public equities at Singapore’s GIC said in April that investors should raise the resilience levels of their portfolios through diversification, continuous scenario planning and stress testing, as well as through absolute return strategies.

Yeo said GIC has devoted “significant resources” to building absolute return strategies in its public markets business in recent years with the expectation that there will be greater volatility and weaker beta returns.

But Bloomberg reported on July 27 that GIC has scaled back its core quantitative unit, the systematic investment group, following a restructuring of its investment teams and strategies.

Meanwhile, the Korea Investment Corporation (KIC) last year introduced a new platform called “strategy asset” with a focus on achieving stable, absolute returns as “unpredictability is the new norm”.

Dowling believes that if an Asian asset owner is running a 60/40 or 70/30 portfolio, the allocation to absolute return can be taken from either the equity or bond side.

“So, if I were running a 70/30, I'd run a 60/30/10, with 10% in absolute return, diversifying strategies. The only free lunch in investing is diversification.”

Performance of hedge funds vs. the S&P 500 Price Return Index
(Source: Preqin Pro. Data as of April 2023)

Operational expertise will matter more in a QT world than relying on multiple expansion, he said.

In QT, one may buy a business at 15 multiple and sell it at the same valuation but still make plenty of money as long as they are very good at increasing cash flows.

“So, in this environment, you want to look for firms that are buying bigger companies with operational expertise,” he said.

For manager selection, Dowling stressed the importance of character over a competitive edge, track record or alignment of interests. He used to host prospective managers for family dinners to supplement traditional due diligence at Brown.  

He also asked juniors at the endowment to meet with at least 200 managers to develop their selection skills.

"Are they trustworthy? Do they truly enjoy the work? You want to see that investing is in their DNA - they would do it regardless," Dowling said, noting what he looks for is "performance animals", not just "asset gatherers".


Blackstone currently has about 500 employees across Asia Pacific, with a year-on-year growth rate of 30% across 8 offices.

Charmaine Chin,

Specifically in BAAM, it has been expanded into 18 professionals in the region versus 12 in 2019. Managing director Charmaine Chin was hired in late 2021 to lead BAAM’s investment activities in Asia from Singapore.

During Covid, Blackstone reopened its Korean office in Seoul after eight years away and expanded the office space in Sydney and Singapore.

ALSO READ: Exclusive: Blackstone makes key regional hires to tap Asia's growing wealth

BAAM will continue to add people in Asia on both investment and operation sides, including due diligence and deal sourcing, Dowling said.

“You have to have a deep commitment to the region and have boots on the ground,” Dowling said, stressing the importance of understanding the different appetite, regulatory landscape, fee sensitivities and pension structures in different Asian markets.

Being a sports enthusiast himself, Dowling likes to hire people who are athletes.

“They spend a lot of time with teams. They're resilient. They know what it's like to make mistakes and get up again.”

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