When BlackRock Inc. completed its initial public offering in 1999, it fell a bit flat. There was no first day pop; Founder and Chief Executive Officer Larry Fink didn’t even get to ring the opening bell at the New York Stock Exchange. Valued at just under $900 million, the firm was one of 30 large investment-managers in the US, managing $165 billion of assets.
This month, the firm marks its 25th anniversary on the stock market — and how it’s grown. BlackRock is now the largest player in its field, with assets of almost $11.5 trillion and a market cap of nearly $150 billion; its executives regularly ring the bell to celebrate the launch of another BlackRock-branded exchange-traded fund.
In many ways, the firm has been fortunate: It’s been a good quarter-century to be in the investment management industry. The value of the global stock market has increased by more than 360%, US Treasury 10-year bonds have returned 130% and Baa corporate bonds have delivered returns of more than 350%. In a business where revenues rise as a function of funds under management, asset price inflation blows a profitable tailwind.
But BlackRock’s success isn’t just about beta. The firm executed two major strategic pivots in its time as a public company – and is currently in the midst of a third. Each of these shifts centered on acquisitions that positioned BlackRock at the forefront of emerging trends and ensured it didn’t go the way of Janus or Putnam or others in the top 30 at the time of its IPO.
The first was in 2006, when BlackRock spent $9.3 billion to acquire Merrill Lynch Investment Management (MLIM). As a former bond trader, Fink built the firm to specialize in fixed income. When it listed on the stock market, 89% of assets under management were in fixed income and liquidity instruments. By the beginning of 2006, equity products only contributed 10% of the firm’s assets. The Merrill purchase changed that, giving the group a 34% exposure to equities. The acquisition also gave it a stronger global presence, expanding the share of assets it managed on behalf of international clients to around a third.
The second shift came in 2009, when BlackRock acquired Barclays Global Investors for $13.5 billion. The deal catapulted the firm to the top of the rapidly growing market for passive asset management. Since then, indexed and exchange-traded funds have grown at 2.5 times the rate of active funds and now make up over two-thirds of the firm’s total. BlackRock’s legacy active fixed-income business accounts for just 10% of group assets under management and attracted client inflows of only $8.6 billion over the last 12 months, compared with $456 billion across the overall franchise.
The firm timed its expansion into equities and passive funds well (arguably it was a bit late buying MLIM, a deal it wanted to do in 2002). Without its strategic pivots, BlackRock would not only have failed to get to number one — it would have struggled to remain in the top 30.
Now, it’s eyeing its next target. “Private markets are becoming increasingly important in the financing of the economy,” Fink said on his earnings call last week, reflecting on the growing demand for less liquid assets that aren’t publicly traded. “Private markets are a strategic priority for BlackRock,” Chief Financial Officer Martin Small added.
On the same day it celebrated its 25th anniversary as a public company, the firm completed a $12.5 billion acquisition of Global Infrastructure Partners, a private infrastructure manager with $116 billion of assets. The deal adds to the $52 billion BlackRock already looks after in infrastructure, the $85 billion it manages in private credit and the $43 billion it oversees in private equity to boost its overall exposure to private assets. By the end of the year, it also hopes to finalize the acquisition of Preqin, an independent provider of private markets data, which it has offered to buy for $3.2 billion.
BlackRock has done well to integrate is previous acquisitions; asset-management mergers can be messy. If it pulls this one off, it will have transformed itself from an active manager of public securities to a manager that straddles the “barbell” of investing, offering clients passive market exposure as well as enhanced performance from illiquid private investments. It's the most adventurous addition to its products roster that it's attempted so far — but, as in those prior cases, it usually pays to follow the money.
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