But the firm headed by Larry Fink also has businesses providing services other than investment management for clients, including a “financial markets advisory” unit and, notably, Aladdin, a technology product that helps investors understand the risks to which their portfolios are exposed. Now it’s looking to optimize Aladdin for the secular shift toward private markets. Five years ago, BlackRock extended Aladdin’s capabilities to private assets through the acquisition of eFront, a tech firm focused on alternative investments. With Preqin, it gains a proprietary data source to plug into that.
Why become a Preqin owner rather than just remain a client? One obvious opportunity comes from enhancing Preqin’s distribution to BlackRock’s huge base of relationships. And as with any acquisition, BlackRock may also believe it can run Preqin better; data may not be its traditional core competence, but the new parent brings financial heft to accelerate product development.
Data on private markets is still behind that on public markets, and there’s scope for greater standardization. Control will enable BlackRock to use Preqin to bolster its existing Aladdin analytical tools offering, for example, private-fund benchmarking. Witness BlackRock’s success with iShares benchmarks in the public markets: “We believe we could index the private markets,” Fink said on a call with investors and analysts on Monday.
Do these potential benefits justify paying a multiple of 13 times this year’s estimated revenue? As analysts at Bloomberg Intelligence note, that’s at the high end of recent transactions in market data. BlackRock is providing some reassurance to its shareholders, suggesting it can grow the acquired business to a size that would represent an internal rate of rate of return of roughly 18%. But it doesn’t give a precise time frame for realizing that.
Preqin founder and 80% owner Mark O’Hare crystalizes billions in personal wealth. This is a massive deal for him. For BlackRock, this is a smaller and less risky way of enhancing exposure to the private asset trend than GIP was. Given its deep relationships with institutional investors worldwide, you can see the logic of wanting to sell more to clients than straightforward investment management.
BlackRock has advantages and disadvantages in managing the polarization of the investment industry between pure-play alternative asset managers and low-margin passive funds. The company enjoys a notable premium valuation, making its stock a good acquisition currency — something it deployed when buying GIP. The snag is that few fund management acquisitions are large enough to make a radical difference to a firm that manages more than $10 trillion. With this deal, BlackRock has shown there are interesting alternatives to just buying another alternative investment firm.