BlackRock’s private markets push may not be over after 2024 buyout spree

BlackRock, the world’s biggest asset manager, is likely to keep up its buying spree in 2024. The company plans to seize chances to grow in areas such as private credit, real estate, infrastructure, or even private equity. Last week, BlackRock shared its intention to purchase HPS Investment Partners, a private credit firm, for around $12 billion. Larry Fink, BlackRock’s CEO, mentioned that this acquisition will help the firms combine private and public market investment products. This marks BlackRock’s third major buy this year.

Looking ahead, sources and analysts believe BlackRock will keep adding to its private market investments through more acquisitions. They might focus on expanding their private credit offerings or strengthening their private equity presence, making them more competitive against bigger players in alternative investments.

“They are exploring all options,” noted Daniel Fannon, an analyst at Jefferies who follows BlackRock. “They are in search of the right partners and asset classes where they can make an impact.”

In 2024, BlackRock invested about $28 billion to enhance its private market capabilities. Fink sees this move as a way to position the firm as a key player in channeling private funds into global infrastructure projects, especially as government budgets tighten and public debt rises.

Private credit, where non-bank entities lend money to companies, has seen a surge lately due to stricter regulations, making it tougher and more expensive for traditional banks to issue high-risk loans. In October, BlackRock completed its $12.5 billion purchase of Global Infrastructure Partners and is expected to finalize a $3.2 billion acquisition of Preqin, a private markets data provider, by the end of the year.

The deal with HPS will create a private credit business with around $220 billion in assets. In comparison, Ares Management has about $313.6 billion in private credit, while Blackstone claims around $432 billion in total credit assets, mostly in private credit.

A source close to the HPS deal suggested that BlackRock might keep growing in the infrastructure and private credit sectors, possibly looking for smaller acquisitions that complement their current offerings.

“BlackRock has clearly stated they want to significantly increase their presence in private credit and infrastructure,” mentioned Alexander Blostein, a senior analyst at Goldman Sachs who tracks BlackRock.

There’s also talk of BlackRock possibly entering the real estate market, but only after the commercial sector stabilizes, according to a senior investment banker. As of the end of September, BlackRock managed around $320 billion in alternative assets, which includes private debt and equity, making up less than 3% of its total $11.5 trillion in assets. Their alternative assets remain small compared to their investments in low-fee products like index funds and ETFs.

Given BlackRock’s size, the recent acquisitions seem more strategic than purely about managing assets, hinting at more expansions into private markets, as pointed out by Cathy Seifert, an analyst at CFRA Research.

“We’ve always considered both organic and inorganic growth for our business,” said Martin Small, BlackRock’s chief financial officer, during the third-quarter earnings call in October. “While we can use acquisitions to boost organic growth, we don’t rely on them to meet our targets,” he added.

BlackRock chose not to comment for this story.

Looking at private equity, it could be another area of growth, as per a source familiar with the situation and the senior investment banker. BlackRock has had some informal talks with private equity firms, but nothing has moved past initial discussions, the banker noted.

The banker explained that BlackRock’s acquisitions have been fairly “opportunistic” this year, implying that they could pursue more targets when the conditions are right.

However, private equity may not be an immediate priority since the industry has faced challenges recently. “It’s just a tougher field to navigate,” said Greggory Warren, a strategist at Morningstar.

When asked about expanding into private equity, Rob Goldstein, BlackRock’s COO, stated earlier this week that the firm already possesses private equity capabilities. “Right now, we see more focus on infrastructure, including both debt and equity, as well as private credit,” he mentioned at the Reuters NEXT conference in New York.

BlackRock’s private equity teams manage $42 billion in commitments, falling short of industry giants like Blackstone, which has $345 billion, and KKR with $190 billion, as of late September.

“BlackRock’s private equity holdings aren’t on the same level as Blackstone or KKR, but they seem more focused on filling gaps in other areas of their business,” said Warren.

One way to boost private equity exposure could be acquiring a business in the secondaries market, one of the hottest sectors. Total transaction volume in this market, where investors can sell their stakes in private equity funds before they mature, is projected to reach a record-setting $140 billion this year, according to BlackRock’s own website.

Nonetheless, the company might need to pause after this year’s flurry of acquisitions. “I expect they’ll take some time to digest these recent purchases, then shift their focus to fundraising, product development, sales, and distribution,” said Benjamin Budish, an analyst at Barclays.

For Mac Sykes, a portfolio manager for BlackRock investor Gabelli Funds, HPS wasn’t the last step in acquisitions for BlackRock, but there’s no urgency for more deals. “They’re being smart about their investments, waiting for the right opportunities,”