Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
BlackRock goes all in on alts
BlackRock paid us$12.5 billion (US$3 billion in cash and 12 million shares) for GIP in a deal that will triple the client assets of its existing infrastructure franchise and give it greater access to the circa US$1 trillion market as it enters a period of massive growth.
“I’m confident we’ll be looking back on today as another transformational moment in BlackRock history, in the same way we can look back on our acquisition of BGI, Merrill Lynch Investment Management, and our early days building Aladdin,” BlackRock CEO Larry Fink told the company’s Q4 2023 earnings call on Friday.
Infrastructure is forecast to be the fastest-growing segment of the private markets, underpinned by soaring global demand for upgraded digital infrastructure like fibre broadband and data centres, as well as a push for investment in logistics hubs, energy security and grid decarbonisation. Governmental deficits opened to gaping size by the pandemic also means that critical infrastructure will increasingly be funded through public-private partnerships.
“Deficits matter,” Fink said. “More and more governments are going to have more difficulty with deficit financing. And in turn, more and more governments are doing more public-private (partnerships). I think GIP’s success in the U.K. and Australia are very good examples of working with governments in terms of helping them sell assets, but at the same time, using the private sector to improve the quality of services.”
GIP manages more than US$100 billion across infrastructure equity and debt, with a focus on energy, transport, water and waste, and digital sectors. The combined $150 billion business will seek to provide “market-leading, holistic infrastructure expertise… at substantial scale”.
“The unprecedented need for new infrastructure, coupled with the record-high government deficits, means that private capital will be needed like never before,” Fink said. “That supply demand imbalance creates compelling investment opportunities for our clients. At the same time, corporates are looking to engage partners in new projects or partially de-risking existing ones.
“These dynamics offer clients, especially those investing for retirement, the high-coupon, inflation-protected, long-duration investments they need, and we believe it will define the future of asset management for the next 20 years.”
The acquisition of GIP is likely the largest infrastructure bolt-on in BlackRock’s history, but obviously not the first. In 2017 it picked up First Reserve’s Energy Infrastructure Funds for an undisclosed sum; in 2015 it acquired Mexican infrastructure manager Infraestructura Institucional; and in 2011 it established a renewable energy investment capability through a strategic partnership with the Dublin-based NTR.
“Our acquisition philosophy has always been about growth, not about cost takeouts and/or consolidations,” Fink said. “Consistently, these combinations have resulted in reaching heights that neither BlackRock nor our merged partners could ever reach on their own. I truly believe that this will be the case again with the integration of BlackRock infrastructure and GIP.”
BlackRock also acquired private debt manager Kreos Capital in August last year, signalling its “ambition to provide clients with a diverse range of private market investment products and solutions”. And while it’s still mainly known as a provider of exchange traded funds, BlackRock also maintains a sizeable liquid alternatives franchise.
