On Why BlackRock Wants To Be Blackstone Again With a Twist of Crypto
BlackRock Inc. is shaking up the top ranks of management, creating a new global product strategy group led by Stephen Cohen that will latch onto the global growth of exchange-traded funds and combine active and index strategies.
The world’s largest asset manager also promoted Rachel Lord as head of all international business across Europe, the Middle East, India and Asia-Pacific, BlackRock Chief Executive Officer Larry Fink and President Rob Kapito said Friday in a memo to employees.
Salim Ramji, global head of iShares and index investments, will leave BlackRock after a decade at the firm to pursue a senior role elsewhere, according to the memo. Ramji helped oversee a massive expansion of the firm’s ETF business.
The Global Product Solutions group “will sharpen our commercial focus on active and private markets strategies and help deliver high-performing products to our clients in those areas,” Fink and Kapito wrote. “It will develop innovative new strategies where our clients are looking to allocate capital in their portfolios, and it will help us better respond to client demand for customized solutions.”
BlackRock disclosed the management overhaul at the same it reported fourth-quarter results and announced that it’s buying Global Infrastructure Partners for about $12.5 billion in a major push into alternative assets.
The GIP agreement came as the firm posted better-than-expected fourth-quarter earnings with inflows pushing its total client assets back above $10 trillion for the first time in two years. BlackRock shares fell slightly at 7:05 a.m. in early New York trading.
Fink, 71, is handing Cohen and Lord significantly more responsibilities after saying last year that he and the board have no higher priority than succession planning and developing the next generation of leaders.
Cohen, whose new title is chief product officer, has been BlackRock’s head of Europe, Middle East and Africa since April 2021, and he previously led wealth and index investment businesses in EMEA as well as global fixed-income indexing. He joined BlackRock in 2011 from Nomura Holdings Inc.
Lord was previously BlackRock’s chair and head of Asia-Pacific, overseeing all businesses in the region including in China, India and South Korea, and led the EMEA region before that. She joined BlackRock in 2013 from Citigroup Inc., and previously worked for 13 years at Morgan Stanley.
Edwin Conway, global head of equity private markets and who previously headed BlackRock’s alternatives unit, also plans to depart after working on the integration of GIP.
Other management changes:
Brent Patry will lead the equity private markets group, comprising private equity, secondaries, real estate and capital markets
Susan Chan will become head of Asia-Pacific
Charles Hatami, global head of the financial and strategic investors group and head of the Middle East, will join the company’s global executive committee
Larry Fink is definitely shaking things up at BlackRock.
First, let me tackle the acquisition of Global Infrastructure Partners (GIP).
GIP and BlackRock issued a press release earlier today:
- GIP is the world’s largest independent infrastructure manager with over $100 billion in AUM and a strong reputation for driving operational improvements in its portfolio companies & proprietary origination
- Transaction creates a market-leading, multi-asset class infrastructure investing platform with combined client AUM of over $150 billion across equity, debt and solutions & strengthens deal flow and co-investment opportunities
- Transaction structured for leadership continuity and alignment with BlackRock’s stockholders, with substantial majority of total consideration to be paid in BlackRock stock
- GIP’s management team will lead the combined, highly complementary infrastructure platform
NEW YORK, January 12, 2024 – BlackRock, Inc. (NYSE: BLK) and Global Infrastructure Partners (“GIP”), a leading independent infrastructure fund manager, jointly announce that they have entered into an agreement for BlackRock to acquire GIP for total consideration of $3 billion of cash and approximately 12 million shares of BlackRock common stock.
A $1 trillion market today, infrastructure is forecast to be one of the fastest growing segments of private markets in the years ahead. A number of long-term structural trends support an acceleration in infrastructure investment. These include increasing global demand for upgraded digital infrastructure like fiber broadband, cell towers and data centers; renewed investment in logistical hubs such as airports, railroads and shipping ports as supply chains are rewired; and a movement toward decarbonization and energy security in many parts of the world.
Further, large government deficits mean that the mobilization of capital through public-private partnerships will be critical for funding important infrastructure. Finally, as capital has become more scarce in a higher interest rate environment, companies are exploring partnership opportunities for their embedded infrastructure assets to improve their returns on invested capital or to raise capital to reinvest in their core businesses.
BlackRock has a broad network of global corporate relationships as a long-term investor in both their debt and equity. These relationships will help us lead critical investments in infrastructure to improve outcomes for communities around the globe and generate long-term investment benefits for clients.
The combination of GIP with BlackRock’s highly complementary infrastructure offerings creates a comprehensive global infrastructure franchise with differentiated origination and asset management capabilities. The over $150 billion combined business will seek to deliver clients market-leading, holistic infrastructure expertise across equity, debt and solutions at substantial scale. Marrying the proprietary origination and business improvement capabilities of GIP and BlackRock’s global corporate and sovereign relationships provides a platform for diversified, large-scale sourcing to support deal flow and co-investment opportunities for clients. We believe bringing GIP and BlackRock together will deliver to clients the benefits of broader origination and business improvement capabilities.
Founded in 2006, world leading independent infrastructure investor GIP manages over $100 billion in client assets across infrastructure equity and debt, with a focus on energy, transport, water and waste, and digital sectors. GIP’s performance has been driven by proprietary origination, operational improvements, and timely exits. They have successfully scaled their global equity flagship series, with the most recent fully invested flagship fund in 2019 surpassing $22 billion.
BlackRock’s over $50 billion of infrastructure client AUM is comprised of infrastructure equity, debt and solutions, and has grown both organically and inorganically since inception in 2011. Top investment talent at BlackRock lead franchises that include Diversified Infrastructure, Infra Debt, Infra Solutions, Climate Infrastructure and Decarbonization Partners.
The GIP management team, led by Bayo Ogunlesi and four of its founding partners, will lead the combined infrastructure platform. They will bring with them talented investment, and operationally focused business improvement teams with a strong track-record of building and running highperforming private markets businesses. GIP’s founders and teams remain highly committed to clients, and we expect the integration with BlackRock’s broader platform will generate even greater opportunities. Subject to completion of customary onboarding procedures, BlackRock has also agreed to appoint Bayo Ogunlesi, GIP Founding Partner, Chairman and Chief Executive Officer, to the Board at the next regularly scheduled board meeting following the closing of the transaction.
“Infrastructure is one of the most exciting long-term investment opportunities, as a number of structural shifts re-shape the global economy. We believe the expansion of both physical and digital infrastructure will continue to accelerate, as governments prioritize self-sufficiency and security through increased domestic industrial capacity, energy independence, and onshoring or near-shoring of critical sectors. Policymakers are only just beginning to implement once-in-a-generation financial incentives for new infrastructure technologies and projects,” said Laurence D. Fink, BlackRock Chairman and CEO.
“I’m delighted for the opportunity to welcome Bayo and the GIP team to BlackRock, and happy to announce our plans to have Bayo join our Board of Directors post-closing. We founded BlackRock 35 years ago based on a unique understanding of investment risk and the factors and forces driving investment returns. GIP’s deep understanding of the factors and forces driving operational efficiency for long-term value creation have made them a global leader in infrastructure investing. Bringing these two firms together will create the infrastructure platform to deliver best-in-class investment opportunities for clients globally, and we couldn’t be more excited about the opportunities ahead of us.”
“I’m excited about the power of this combination and the prospect of working with Larry and his talented team. We share with BlackRock a culture of collaboration, client focus, investment partnership, and commitment to excellence. Investors have adopted private infrastructure investing for its ability to provide stable cashflows, less correlated returns, and a hedge against inflation. Global corporates have turned to private infrastructure as a fast innovator and a more commercially agile owner of infrastructure assets that aren’t core to their commercial businesses. This platform is set to be the preeminent, one-stop infrastructure solutions provider for global corporates and the public sector, mobilizing long-term private capital through long-standing firm relationships,” said Bayo Ogunlesi, GIP Founding Partner, Chairman, and CEO. “We are convinced that together we can create the world’s premier infrastructure investment firm.”
GIP Profile
In addition to proprietary origination, business improvement is a key pillar of GIP’s infrastructure approach, with a dedicated team delivering deep operational enhancements. GIP has executed successful exits across multiple channels. Among GIP’s investments are Gatwick, Edinburgh, and Sydney Airports, CyrusOne (data centers), Suez (water and waste), Pacific National and Italo (rail), Peel Ports and Port of Melbourne, and several major renewables platforms, including Clearway, Vena, Atlas and Eolian.
GIP is the largest independent infrastructure manager by assets under management globally, with over $100 billion in AUM across infrastructure equity and credit strategies supported by approximately 400 employees. Its over 40 portfolio companies generate over $75 billion in annual revenue and employ approximately 115,000 people around the world. GIP’s success has been driven by its targeted focus on real infrastructure assets in the transport, energy, digital, and water and waste sectors. GIP’s in-depth knowledge of target industries underpins its ability to originate proprietary transactions through outright ownership and corporate joint ventures, conduct deep and extensive diligence, and structure investments.
I must admit, BlackRock did its homework in acquiring GIP, one of the best infrastructure funds in the world:
Founded in 2006, world leading independent infrastructure investor GIP manages over $100 billion in client assets across infrastructure equity and debt, with a focus on energy, transport, water and waste, and digital sectors. GIP’s performance has been driven by proprietary origination, operational improvements, and timely exits. They have successfully scaled their global equity flagship series, with the most recent fully invested flagship fund in 2019 surpassing $22 billion.
I love the focus area of GIP. I'm also pleased to see BlackRock agreed to appoint Bayo Ogunlesi, GIP Founding Partner, Chairman and Chief Executive Officer, to its board at the next regularly scheduled board meeting following the closing of the transaction.
So why did BlackRock acquire GIP?
Ben Werschkel of Yahoo Finance reports 'the energy transition' helps explain BlackRock's $12.5 billion bet on infrastructure:
BlackRock's (BLK) plan to buy private equity firm Global Infrastructure Partners is a $12.5 billion bet by the world’s largest money manager on growing demand for new energy, transportation, and digital infrastructure projects in the coming years.
"We believe the next 10 years is going to be a lot about infrastructure," Larry Fink, BlackRock's CEO, told investors in a Friday morning earnings call.
There is a high demand for capital to fund the world’s transition to clean energy, he said, and that's an opportunity to make money. GIP has holdings in green energy, airports, water, and waste companies and an oil pipeline.
"If we are going to decarbonize the world ... capital and infrastructure is going to be very necessary," Fink said during Friday’s back and forth, adding "that supply/demand imbalance creates compelling investment opportunities for our clients."
Fink listed other reasons to be bullish on the infrastructure space beyond what he called "the energy transition."
He also cited issues like growing public deficits, the growing need for digital infrastructure like broadband, and a general push for energy independence.
The related push for energy independence, he notes, might not necessarily lead a nation toward clean energy but it will require infrastructure nonetheless.
"But more importantly, or just as importantly, the amount of capital they need to provide to develop more decarbonizing investments in wind and solar to provide broader energy for their growth and their economies is very important," he added, after discussing the list of factors.
ESG by another name?
Friday’s announcement comes after years where Fink has found himself and his company unwittingly pulled into a political debate around climate change and other issues.
The link is rooted in Fink's long history of urging companies and long-term investors to do more to prepare for climate change by championing a focus on environmental, social, and governance (ESG) considerations.
The ongoing political backlash has been evident on the 2024 campaign trail where BlackRock often earns disapproving mentions.
“She's backed by companies like BlackRock,” said Florida Gov. Ron DeSantis at a debate just this week to criticize former South Carolina Gov. Nikki Haley. In fact, Fink has not endorsed any candidate but did meet with Haley recently.
Fink threw up his hands on the ESG issue and announced last June that he would stop using the term at all, saying it has "been totally weaponized."
He kept to that pledge Friday and ESG never came up directly on the nearly 90-minute call. But Fink nonetheless continued to link climate considerations and investing decisions.
At another point in Friday's call, Fink touted BlackRock’s ongoing efforts around "diversified infrastructure," with projects underway from a partnership with Occidental Petroleum (OXY) for a carbon capture facility in Texas to a wind farm in Kenya.
"It adds on to our very strong track record investing in the transition," he said.
The deal with Global Infrastructure Partners is expected to close in the third quarter. Adebayo Ogunlesi, GIP’s chairman and CEO, is set to join BlackRock’s board once the deal closes.
The deal would be BlackRock's largest acquisition since its 2009 purchase of Barclays Global Investors.
Fink said he’s already gotten a positive reaction in the hours since the deal was announced.
"In my calls with clients today, I can tell you more and more sovereign wealth funds see infrastructure as a major growth area in their asset allocation," he said, adding, "I just got an email from a big government saying, 'OK, there are things we can do more.'"
Not just sovereign wealth funds, US, Canadian and European pension funds too.
Yesterday I discussed why CalSTRS' CIO Chris Ailman is retiring at the end of June and agreed with him the Fund needs to increase its exposure to inflation sensitive asset classes which includes infrastructure.
The energy transition Fink talks about is huge and Canada's large pension funds are all over it.
But there's another big reason BlackRock is growing its private market asset classes: fees and competing head on with Blackstone and other large alternatives fund managers that are collectively reaping trillions in fees.
BlackRock is already a major player in ETFs but that business has reached its growth potential.
By acquiring GIP, it is sending a clear message to its clients and across Wall Street, they want a slice of the alternatives pie which keeps growing bigger and bigger.
In fact, Jack Denton of Barron's wrote an insightful comment on why BlackRock wants to be Blackstone again:
It’s not just the name: BlackRock, the world’s largest asset manager, has its roots in Blackstone, the world’s largest alternative investment manager. On the back of a multiyear boom in private equity and credit, it would make sense that the former wants to move closer to the business of the latter.
That came nearer to reality Friday. Alongside its fourth-quarter results, BlackRock announced that it had acquired Global Infrastructure Partners in a deal worth some $12.5 billion. Expected to close in the third quarter, the transaction comprises $3 billion in cash—which BlackRock intends to fund through debt—and 12 million shares of the company’s common stock, which closed at $792.61 on Thursday. BlackRock said that around 30% of the total consideration, all in stock, will be deferred and is expected to be issued in about five years.
“We believe that the next 10 years is going to be a lot about infrastructure,” BlackRock Chairman and CEO Larry Fink said on a Friday morning conference call. Private capital will be needed to digitize power grids, fund renewable energy projects, and capture carbon from the air.
“Deficits matter,” Fink said. “More and more governments are going to have more difficulty finding deficit financing.”
GIP is one of the largest independent equity and debt fund managers focused on infrastructure, with more than $100 billion in client assets targeted toward energy, transport, water and waste, and digital infrastructure. Infrastructure is currently a $1 trillion market, BlackRock said, and is forecast to be one of the fastest-growing segments of private markets in the years ahead, supported by structural trends including upgrading digital infrastructure like telecoms.
“The combination of BlackRock infrastructure with GIP will make us the second-largest private markets infrastructure manager with over $150 billion in total [assets under management], providing clients … with the high-coupon, inflation-protected, long-duration investments they need,” Fink said in a statement. “This ambitious transformation of our firm positions us better than ever.”
The deal makes sense for BlackRock. It has produced billions in profit amid the explosion of investor interest in exchange-traded funds over the past two decades, a shift linked in turn to a rise in passive investment strategies. Much of the group’s assets under management—$3.5 trillion as of the end of 2023—sits in its ETF business.
But there recently has been speculation that passive investing has reached its peak. With so much of the world’s investment capital already sitting in ETFs—and BlackRock’s margins under pressure, as recent layoffs laid bare—the group would have faced questions of where to find the next era of profit growth.
The answer—private equity—should have been obvious amid the institutional mania over private markets this year, particularly private credit. BlackRock’s deal to buy GIP spells it out explicitly.
“Our marriage with BlackRock is a marriage made in heaven,” GIP Chairman Adebayo Ogunlesi told the Friday audience.
A marriage made in heaven indeed, and I believe it's only the beginning, expect more acquisitions as BlackRock looks to grow its private asset funds, charging institutional investors higher fees.
Of course, in some asset classes going through challenges, like private equity, investors aren't only asking for more co-investments to cut fees, in some cases, they're asking for their money back.
That's why Fink is smart to focus on infrastructure for now and wait for the dust to settle in real estate, private equity and private debt before expanding in those areas.
Where else do I see BlackRock making meaningful acquisitions and adding value not only for their institutional clients but also retail ones?
I see tremendous potential in the liquid alternatives space, ie hedge funds and creating new alpha ETFs offering retail and institutional clients active ETFs that generate alpha in all market environments.
Anyways, as of now, BlackRock is joining Fidelity and others who are going to benefit from regulatory approval for Bitcoin and other crypto ETFs.
My biggest issue here is transparency and lack of proper regulations.
In other words, while I agree with Fink that bitcoin ETFs are a mere stepping stone to tokenization, I also share Jamie Dimon's concerns about fraud, money laundering, bribes, and just lack of proper oversight.
A friend of mine put it best: "All these cryptocurrencies make it easier to bribe government officials and even pension fund managers, not to mention finance drug cartels and terrorist organizations. You have to wonder why they haven't shut it all down, maybe it's to facilitate illicit activity and bribes."
I don't know, all I know is whale and regulatory risk run high but I also see the point Fink and others are making, cryptos are the new digital gold and will move like gold as geopolitical risks rise and investors look for some alternative store of value.
I remain skeptical on cryptos mostly because I don't see them as an asset class and see them fraught with risks, but I am open to being wrong and if you feel comfortable investing in crypto ETFs, be it bitcoin or ethereum, be my guest.
For me, it still feels like a giant global Ponzi scheme no matter which institutions back it.
Alright, let me wrap it up there.
I know Fridays are usually reserved for market comments but you can read my Outlook 2024 to gain my perspective on markets, it hasn't changed since last week.
Below, BlackRock CEO Larry Fink joins 'Squawk Box' to discuss the firm's acquisition of Global Infrastructure Partners for about $12 billion in cash and stock, what's behind the firm's big bet on infrastructure, BlackRock's Q4 earnings results, the Fed' inflation fight, rate path outlook, and more.
Fink also discusses the SEC's approval of bitcoin ETFs, the impact on BlackRock, whether he's a believer in bitcoin and crypto at large, and more (second clip).
Also, in the latest edition of Wall Street Week, Larry Fink, BlackRock Chairman and CEO and Adebayo Ogunlesi, Global Infrastructure Partners Chairman and CEO discuss their major bet on infrastructure. Kristen Bitterly, Citi Global Wealth Management Head of North America discusses why her clients are more focused on geopolitics this year. Steve Rattner, Willett Advisors Chairman & CEO talk about why Wall Street will not react well to a second Trump victory. Glenn Hubbard, Columbia Business School Professor of Finance and Economics explains what global Wall Street should be focusing on with the upcoming 2024 presidential election.
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