Why BlackRock Wants to Be Blackstone Again (From Barron’s) [2 Articles] (2024)

~ Saturday, January 13, 2024 Blog Post ~

By Jack Denton, January 12, 2024

It’s not just the name: BlackRock BLK 0.88%, the world’s largest asset manager, has its roots in Blackstone BX -0.48%, 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.

Source:

https://www.barrons.com/articles/blackrock-global-infrastructure-partners-blackstone-71692a5c

By Jack Pitcher, January 12, 2024

The acquisition would be BlackRock’s largest in 15 years

BlackRock BLK 0.88%increase; green up pointing triangle has agreed to buy private-equity firm Global Infrastructure Partners for roughly $12.5 billion in cash and stock, a significant push into private-market investments for the world’s largest asset manager.

New York-based GIP owns and operates energy, transportation, and water and waste companies, including a stake in London’s Gatwick Airport. The acquisition would be BlackRock’s largest since it bought Barclays’s asset management business in 2009.

BlackRock separately reported its assets under management topped $10 trillion at the end of the fourth quarter for just the second time in its history.

To acquire GIP, BlackRock will pay $3 billion in cash and 12 million of its own shares, worth about $9.5 billion based on Thursday’s closing price. GIP is majority owned by its six founding partners, who will collectively become among the largest shareholders of BlackRock by acquiring about 8% of the shares outstanding, according to a person familiar with the deal.

Five of the six founding partners, including Chief Executive Bayo Ogunlesi, are joining BlackRock. Ogunlesi will sit on BlackRock’s board and resign as lead director of Goldman Sachs. He will lead BlackRock’s new infrastructure group.

“Infrastructure is one of the most exciting long-term investment opportunities, as a number of structural shifts reshape the global economy,” BlackRock Chief Executive Larry Fink said in a statement. “Policymakers are only just beginning to implement once-in-a-generation financial incentives for new infrastructure technologies and projects.”

BlackRock has been pushing to expand its private-market operations, an area that is faster growing and potentially more lucrative than its core business of selling low-cost passive investment products such as exchange-traded funds. The deal will boost BlackRock’s private assets by about 30% and roughly double its private-market base management fees.

In GIP, BlackRock is buying an infrastructure fund manager with about $100 billion under management and $80 billion of combined revenue from its portfolio companies.

The deal is expected to close in the second or third quarter, after which BlackRock will create a distinct Global Infrastructure Partners business that combines the acquired firm with existing BlackRock infrastructure teams. BlackRock says the new business will be the second-largest private infrastructure manager globally with more than $150 billion in assets under management, trailing only Brookfield Asset Management.

Growing government deficits are increasing the need for private financing of major infrastructure projects, and subsidies can make the investments attractive, BlackRock Chief Financial Officer Martin Small said.

BlackRock favored acquiring GIP over a more-traditional private equity buyout firm in part due to the belief that private equity’s best returns from the zero-interest rate era are behind it, Small said.

For GIP, coming under the BlackRock umbrella should enhance scale and access to boardrooms and governments, said Raj Rao, president of GIP.

In a memo to employees, BlackRock concurrently announced a reorganization it calls its “biggest transformation in 15 years.” BlackRock will create a new global product services business that works across all of the firm’s investment strategies and fund structures, including the mammoth iShares ETF business. The division will aim to connect clients with all of BlackRock’s offerings, including public and private investments, and help “drive the next phase of growth for iShares,” the memo said.

Salim Ramji, the current global head of iShares, is leaving the firm “to pursue a new career path,” the memo announced.

BlackRock on Tuesday said it was laying off about 600 people, or 3% of global employees, to “reallocate resources.”

The company’s fourth-quarter earnings, also announced Friday, largely beat Wall Street’s expectations.

BlackRock said its assets under management rose to $10 trillion at the end of the fourth quarter, up from about $9.1 trillion three months earlier and roughly tied with its highest-ever total from the fourth quarter of 2021. Assets were boosted by higher markets and $96 billion of investor inflows to the firm’s products.

Per-share earnings of $9.15 beat the $8.73 expected by analysts polled by FactSet. Net income climbed 9% from the same period a year ago, and quarterly revenue rose 7%.

BlackRock shares closed 0.9% higher on Friday.

Corrections & Amplifications
BlackRock’s new infrastructure business will be the second-largest private infrastructure manager globally with more than $150 billion in assets under management, trailing only Brookfield Asset Management. An earlier version of this story omitted the word private and incorrectly said the business would trail Macquarie Infrastructure’s.

Source:

https://www.wsj.com/business/deals/blackrock-to-buy-global-infrastructure-partners-for-12-5-billion-22f8e3d9