The squeeze on BlackRock’s private markets may not end after the 2024 buyout wave

A further push into private assets could also include buying assets to give BlackRock exposure to real estate – albeit once the commercial market has stabilized, a senior investment banker said.

BlackRock’s alternative assets under management — including private debt and equities — totaled about $320 billion at the end of September, less than 3% of its $11.5 trillion in assets. BlackRock’s alternative assets pale in comparison to its investments in low-cost products such as index funds and ETFs.

Given BlackRock’s size, recent acquisitions appear to be of greater strategic importance than asset management, suggesting that complementary ventures into private markets are possible, said Cathy Seifert, an analyst at CFRA Research.

“We have always thought about making organic and inorganic investments in our business,” BlackRock Chief Financial Officer Martin Small said during the company’s third-quarter earnings call in October. “Inorganic is a tool we have to optimize organic growth, but we don’t need M&A to achieve our organic growth targets,” he said at the time.

BlackRock declined to comment for this story.

Private assets

Private equity could be another avenue for expansion, a source familiar with the matter and the senior investment banker said. BlackRock has held informal discussions with private equity firms in the past, but none have progressed beyond the preliminary stages, the banker said.

BlackRock’s acquisitions have been relatively “opportunistic” this year, the same banker said, suggesting BlackRock could soon pursue new targets if conditions are right.

However, private equity may be less of an immediate focus as the sector has struggled in recent years.

“It’s just a much tougher part of the business,” said Greggory Warren, a strategist at Morningstar.

Asked about a possible private equity expansion, BlackRock Chief Operating Officer Rob Goldstein said Tuesday that the company already has private equity capabilities.

“As we look at where the puck is going and where customers are increasingly focusing and finding allocations, for now we are prioritizing both infrastructure, meaning debt and equity, as well as private credit,” he said in a panel. at the Reuters NEXT conference in New York.

BlackRock’s private equity teams manage $42 billion in capital commitments, trailing industry heavyweights such as Blackstone, which oversees $345 billion in private equity assets, and KKR, with $190 billion as of the end of September.

“BlackRock doesn’t have as much private equity as Blackstone and KKR, but I think they are more interested in complementing other parts of the business,” Warren said.

Expanding secondary businesses through an acquisition would be one way to increase private equity exposure, focusing on one of the hottest sectors, the senior investment banker said.

Total transaction volume in the market, where owners of shares in private equity funds can sell them to other investors before the fund matures, is expected to reach a record $140 billion this year, according to BlackRock’s own website.

To be fair, the company may need to take a breather after this year’s wave of acquisitions.

“I imagine they will process some of the recent acquisitions and then focus on upcoming fundraising, product creation, sales and distribution,” said Benjamin Budish, an analyst at Barclays.

For Mac Sykes, portfolio manager of BlackRock investor Gabelli Funds, HPS wasn’t BlackRock’s last foray into acquisitions, but the company is under no pressure to make more deals.

“I see them as opportunistic with a high bar. They are smart capital allocators,” Sykes said.

(Reporting by David French, Andres Gonzalez, Davide Barbuscia, Saeed Azhar, Echo Wang, Ross Kerber, Lewis Krauskopf; Editing by Megan Davies and Leslie Adler)