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March 2, 2024
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Private Equity

Citywire Selector | Is BlackRock’s GIP deal a sign of things to come in private markets?

BlackRock’s acquisition of Global Infrastructure Partners might be a sign of things to come in the alternatives space.

We’ve heard that alternatives managers, particularly those with private markets capabilities, are being hounded by traditional players looking to expand their revenue base and offer solutions to clients hungry for returns.

The acquisition of GIP is one of the biggest deals that could have happened in the infrastructure space. It brings BlackRock, which will have $150bn in assets, up to nearly Brookfield Asset Management’s size – which has $180bn in infrastructure AUM and is the second largest group in the asset class after Macquarie, which has around $200bn.

By the end of the first half of last year, BlackRock had around $320bn in alternatives assets under management. Only $50bn of that was in infrastructure. The group has been doing all it can to grow this organically, but is also known for making transformative acquisitions when it wants to. Back in 2009, it bought Barclays’ asset management arm in a deal that has now been dubbed the ‘deal of the decade’ as it turned BlackRock into the largest asset manager in the world at the time.

Since setting up the infrastructure arm in 2011 the group has made several acquisitions in the space. In 2015 it bought Infraestructura Institucional in Mexico. In 2017, it acquired First Reserve Energy Infrastructure Funds, which added $10bn in assets to its franchise. In 2022, it bought Taiwanese solar energy firm New Green Power for an expansion into Asia Pacific.

Back in October, chief executive Larry Fink said he was targeting ‘transformational M&A’ to expand its private markets capabilities, and this certainly counts.

Some investors have said many private markets businesses wouldn’t want to be owned by a larger asset manager, but it is also the case that running your own alternatives firm is becoming increasingly difficult.

First of all, fundraising is challenging in an environment where liquidity is scarce. Many investors also prefer to consolidate their fund manager relationships and not have a long list of funds from different managers.

In a higher rate environment, where there are fewer distributions because of a lack of exits, investors that do have the money to play are becoming much more selective. That will surely affect some businesses that are not offering enough differentiation in their current form.

There is also more regulatory scrutiny of private markets, which could increase compliance costs for smaller players. 

Meanwhile, traditional asset managers have seen the value in offering private markets solutions to their clients. Assets are stickier and fees are higher. Citywire’s own research last year found that 20 of the largest asset managers globally had launched a private markets fund in the year to the end of September, and 13 of those groups had already made an acquisition in the preceding six years to grow their private markets arms.

Growing client demand

Client demand for infrastructure is also increasing, giving asset managers another reason to expand into the area.

Infrastructure was highlighted as one of the top themes for 2024 by global private banks, including UBS, HSBC, Citi, BNP Paribas, UBP and Deutsche Bank.

Private banks consider infrastructure a good diversification tool compared with traditional assets like equities and bonds, as well as an inflation hedge.

There is also money flowing into the space from different governments. Europe and the US have introduced infrastructure packages, including the Inflation Reduction Act in the US, and the NextGenerationEU recovery fund, which aims to deliver more than €2tn of investment up to 2027.

In its private markets outlook, UBP said the infrastructure sector passed the $1tn assets milestone recently, having attracted investors thanks to its long-term visibility on cashflows, high barriers to entry, low volatility, and cash lows linked to inflation. 

However, infrastructure is not dominating portfolios of major investors yet. According to Citywire’s latest Top 30 Super Allocators quarterly, only four out of 14 private banks that disclose their infrastructure positions had an overweight in the sector at the end of last year, including BBVA, Deutsche Bank, BNP Paribas Wealth Management, Edmond de Rothschild and Fideuram (Intesa Sanpaolo).

Following BlackRock’s announcement, others will surely want to accelerate their timelines to ensure they are not left behind in the chase for private assets expertise.

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