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World's largest asset manager wants to revolutionise your portfolio

In early and mid-1980s, Larry Fink was a young, up-and-coming mortgage trader at a conservative bank called First Boston in New York. He built the bank’s mortgage business from scratch and had his sights set on competing with bigger players in the mortgage space, like Salomon Brothers. His aggressive trading paid off, bringing in US$1 billion in business, turning him into a star at his firm.

Then, disaster struck. Fink loaded up on mortgages just as interest rates unexpectedly started to fall. That led to him losing an astronomical US$100 million in just one quarter.

He went from star to pariah.

Understandably, that loss led to deep introspection, and Fink recognized that he needed to get better at risk management.

A short time later, Fink and seven partners co-founded an asset-management company called Blackstone in 1988. Its main business was investing money from pension funds and other long-term asset holders in bonds.

His first employee built software that gave investors something they'd never had before: a clear, unified view of portfolio risk. Called Aladdin, the software filled a gap in the market and made Blackstone millions.

In 1995, a falling out between Fink and Stephen Schwarzman, Blackstone’s cofounder, led to the firm splitting off, and being renamed Blackrock. And fours year on, Blackrock managed US$165 billion and became a public company on the New York Stock Exchange.

A decade after, Blackrock pivoted. Fink recognized the growing clout of ETFs and how passive investing was democratising markets for the masses. And there was a forced seller, Barclays, which needed to raise capital due to the financial crisis and wanted to offload a business that included its iShares ETF business. So, at the start of 2010, Fink bought this unit for US$13.5 billion, which catapulted Blackrock into being the world’s largest asset manager.

It turned out to be perfect timing and the company has since ridden an extraordinary 15-year boom in passive investing.

Source: ETFGI

Fink certainly wasn’t the first person to realise the potential of ETFs, but he bought at the right time and built the business into a powerhouse. Blackrock now manages US$11.6 trillion, of which $2 trillion comes from iShares.

Now, however, Fink is pivoting again.

What’s he up to?

Over the past 14 months, Fink has moved aggressively into private assets.

In January last year, Blackrock agreed to acquire Global Infrastructure Partners (GIP) for US$12.6 billion. Later in 2024, it also snapped up private markets firm Preqin for US$3.2 billion. And last December, it bought HPS – a private debt manager with US$148 billion in funds under management.

In total, Fink has spent US$28 billion.

In his latest shareholder letter, he acknowledges that these purchases have fundamentally changed his company:

“…we’ve been—first and foremost—a traditional asset manager. That’s who we were at the start of 2024. But it’s not who we are anymore.”

The strategy

The question is: why is one of the smartest people in finance buying into private assets? In the letter, Fink says he sees another gap in the market, or three gaps to be more precise.

First, he thinks we’re on the cusp of an explosion in infrastructure investment. He cites data that new infrastructure investment of US$68 trillion is need globally by 2040. Hence, why he purchased GIP, which already manages large infrastructure assets such as Gatwick Airport in the UK.

Source: Blackrock’s Larry Fink

Second, private asset managers can help finance the infrastructure needs. Funding for infrastructure projects has traditionally come from Governments, banks, and public markets. Yet, most developed market countries are running large budget deficits and can’t afford to fund these projects. Meanwhile, banks are stepping back from funding such projects as regulators tighten lending standards. And lastly, public markets are shrinking which means listed companies are less likely to provide capital for infrastructure investments. Private asset managers can fill the breach.

Third, Fink thinks that as ETFs have done with indices, Blackrock can index private markets to make them accessible to the average investor. To do this, he wants to make Preqin the Bloomberg of private markets, providing performance data on managers and offering comparable valuations for private assets.

Barbell strategy

Consultant Huw van Steenis believes Fink is employing a so-called barbell strategy. On the one hand, he’s still riding the passive investment wave, with its growing assets and low fees. On the other hand, he wants a piece of the faster growing and more lucrative private assets business.

To put the later into context, alternative investments now make up 4% of Blackrock’s total assets but are expected to account for more than 25% of its profits.

If passive investments are one side of the barbell, and private/alternative assets are on the other side, what’s in the middle then?

According to van Steenis, it’s traditional fund managers, who are stuck between the low fees offered by ETFs, and the higher fee, but potentially better performing alternative asset managers such as hedge funds, private debt funds etc.

From 60/40 to 50/30/20

As markets evolve, Fink says the traditional investor portfolio of 60% equities and 40% bonds may not be fit for purpose. That is, it may not bring the diversification that investors need.

He envisions a future where a standard portfolio may look more like 50/30/20 - stocks, bonds, and private assets like real estate, infrastructure, and private credit.

While private assets may carry greater risk, Fink says they also provide great benefits. For instance, infrastructure can offer inflation protection, more stable performance, and help boost overall portfolio returns.

Source: Blackrock’s Larry Fink

My take

Will Fink’s latest moves pay off?

I think Fink is spreading his bets in private assets and not all of them will bear fruit.

In infrastructure, there are already large, reputable players, like Brookfield Asset Management. Fink will have to fight competition from these players to gain scale in this business.

That said, infrastructure is likely to be a growth area and I can see it playing a large part in investor portfolios, possibly at the expense of bonds, which remain on the nose with investors after a four year bear market.

Like infrastructure, private debt already has big operators, such as KKR, Apollo, and many others. These firms have been in the business for years and have scale. However, private debt is growing fast enough to potentially include newer entrants such as Blackrock.

The area with the greatest potential is in indexing private assets. If investors can view data on private asset managers and their underlying portfolios as they do with LICs and active ETFs now, that would be revolutionary. As would investors being able to invest easily in a much broader range of private assets and managers.

 

James Gruber is Editor at Firstlinks.

 

10 Comments
Bert James
April 06, 2025

I have a 60/40 Split, Stocks and Private Credit (mortgages). I’ve found the PC market where your investing in particular loans, normally for Developers and Builders very safe. You get to see the LVR and security held before investing and all are in sub trusts. My average return is in excess of 8.8%. I watched one go on the market to be filled by investors last week returning in excess of 10% for funding of over 35 million and it was snapped up within 20 minutes so I’m not the only one thinking their great investments. I will probably take advantage of the Trump crash and purchase stocks as some of these investments mature before going back to them in the future.

JB
April 05, 2025

I don’t quite understand how this private equity can be made sufficiently liquid to be traded via ETFs.

Kevin
April 04, 2025

Thanks again. That letter is long . A doctor kicked off social security taxes in the US with a letter to a newspaper.He could've perhaps expanded on that a bit with Ida May Fuller and her ~ $24 paid in social security taxes,then collecting roughly 24K in pension payments by living to 100.What an investment.

He does know how to explain it to a 10 year old

Kevin
April 04, 2025

Thanks,good article.I like a bit of financial history .If you don't try you don't succeed.
A new product from the financial industry,hopefully it works for the people that buy it.
I'll have to have a google and see if those letters are available for the public Hopefully he has the knack of realising he is explaining to a 10 year old.

On the conspiracy theory side of things ( those distant relations of mine) he came up perhaps 3 to 6 months ago . The figure of around $15 trillion was mentioned Obviously ( to them) this is all his money.He has "their" share of the money. Obviously the govt should take it off him ,and give it back to them.The govt must know where the secret bank account is that has that money in it .Of course he doesn't pay tax on any of the interest . I don't know why the govt doesn't just inform the IRS about all of this interest he receives and taxes that money.The conspiracy theorists are a bit busy at the moment proving to each other that the earth is flat.If only people would listen to them.
They did have a long discussion on how evil he is Blackrock apparently own all of the companies in the world,so Larry Fink keeps wars going so he can make even more money.These companies make "things" for war so he can get richer. Boeing was offered as an example of companies that make "things"for war,and he owns Boeing,or most of the shares in Boeing.That'll come as a big surprise to Boeing shareholders. I wonder if that is in the letters. They don't know about those letters yet,but. One day somebody might discover these secret letters,make up a meme ,and it will be , BREAKING ,new letters discovered of when Larry Fink revealed his plans to destroy the world. Never a dull moment on the internet

Storm here,I was thinking of seeing if the knee would take a short 5 to 10 KLM ride.Perhaps have a look at Macbank today, it could fall off a cliff . Buy them, or wait a few days and see if they get cheaper. I need my crystal ball and I've forgotten where I put it .
Thanks again for the article



Stephen
April 04, 2025

The 50/30/20 sounds a lot like the investment portfolio, replete with private credit, directly held infrastructure etc of a Balanced industry fund, very easily accessible to any Australian.

However this type of portfolio is not easily accessible in one fund outside superannuation.

The integration of various assets in one fund, see the new WAM fund, for a single purpose is a useful and welcome development.

Patrick Kissane
April 03, 2025

Some years ago, and I do not know if they still have this investment option, Colonial First State had a managed fund option of Infrastructure shares.

CC
April 04, 2025

Infrastructure share funds are VERY common.
This article is referring to private assets, including unlisted Infrastructure. There are only very few unlisted Infrastructure funds available to non institutional / wholesale investors

CC
April 03, 2025

My portfolio is roughly
60% stocks,
15% Fixed interest ( mainly FRNs funds ) and cash,
25% alternatives ( private credit, private equity, unlisted real estate & infrastructure, and hedge funds ).
The 60 - 40 stock - bond portfolio is an antiquated notion not fit for modern times in my opinion. Fixed rate bond funds have been dismal performers over the past few years during interest rate rises, with people getting a rude shock that government bond funds can deliver negative returns

sgn
April 03, 2025

Bundle Private Assets to form an ETF product for an Investors may be similar to investing in Unlisted product.?

CC
April 06, 2025

But much quicker and easier to buy and sell on the ASX without forms and identification requirements . Many funds invested in unlisted assets only allow quarterly or in some cases annually redemptions and in the event of difficulty they can close to all redemptions

 

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