Despite its strengths, Blackstone (NYSE: BX) stock trails KKR (NYSE: KKR), Apollo (NYSE: APO)

Investment pros generally cite Blackstone (NYSE: BX) as the gold standard for alternative asset managers. It has thrived in all four of its business segments: private equity, real estate, credit and insurance, and multi-asset investing.

Yet the returns on Blackstone’s stock have trailed those of its top competitors KKR (NYSE: KKR) and Apollo Global Management (NYSE: APO). That’s true short-term and long-term.

Blackstone’s annualized returns over the last one-, three-, five- and 10-year periods are 43%, 12%, 24% and 19%, respectively, according to Morningstar. That compares to 63%, 29%, 36% and 20% for KKR. And it compares to 60%, 34%, 30% and 22% for Apollo.    

That begs the question of why Blackstone has underperformed its brethren. In a word, the answer appears to be diversification. 

Narrower focus of KKR, Apollo

Blackstone is more diversified than KKR, which is known particularly for its private-equity prowess. That prowess has particularly paid off in recent years. It had $195 billion of private-equity assets under management as of Dec. 31, up from $81 billion in 2018. 

And Blackstone is more diversified than Apollo, which has had whopping success with its credit investing in recent years. Apollo’s credit management fees jumped 20% last year to $2 billion.

So KKR and Apollo benefited from their more narrow focus, and Blackstone was weighed down in comparison by its varied activities. That includes its Blackstone Real Estate Income Trust, which had to limit investor withdrawals in 2022-24 after real estate values dropped.

Most investment experts recommend building a diversified portfolio. That allows you to participate in the gains of any market sector that appreciates and avoid big losses in any sector that drops.

But just as diversification can limit your losses, it can also limit your gains. So that’s the tradeoff you get by investing in Blackstone.