Asset management has two great kingdoms. The purveyors of mutual funds and exchange-traded funds dominate the first and better-known one. They invest in public stocks and bonds, and their clients are increasingly sensitive to costs. Their most popular products these days are passive index trackers with razor-thin fees, often just a few hundredths of a percentage point of assets each year. But the money managers make it up on volume, selling funds to everyone from big institutions to ordinary people putting a bit of each paycheck into 401(k) retirement plans. The so-called Big Three—BlackRock, State Street and Vanguard Group—are the top holders of almost every stock in the S&P 500.
The second kingdom of asset managers invests in private markets. The markets are smaller and the clients more exclusive, but the fees are much, much higher—closer to 2% a year plus a fat share of profits. The longtime titans of leveraged buyouts, including Blackstone, KKR and Apollo Global Management, rule this kingdom. But now BlackRock, the biggest of the Big Three with $11.6 trillion in assets under management, is making a play to be the first company to really bring these two kingdoms together. Its senior executives talk about becoming a “category of one”—a sort of everything store for money management.
To achieve that feat, BlackRock must excel in a hypercompetitive market where it has sometimes struggled to make a big enough mark. The company is moving fast: It plunked down almost $30 billion over three acquisitions last year. That’s the biggest deal spree in the history of “alternative” asset management, the catchall term for investors in private markets, infrastructure, hedge funds and the like.
The company’s $12.5 billion acquisition of Global Infrastructure Partners (GIP)—which owns airports, pipelines and wind farms — is the largest to date for a private asset shop. An additional $12 billion all-stock deal for private credit manager HPS Investment Partners, slated for completion by midyear, would be the second-biggest. BlackRock moved to become one of the leading data providers on private markets when it announced in June that it was buying Preqin, which tracks about 190,000 funds, for £2.55 billion ($3.17 billion). When the purchase is done, BlackRock will find it easier to measure the performance of private assets and create new investing indexes linked to them.
All told, the deals will transform the company into a $600 billion manager of alternatives, exceeding the assets of Carlyle Group and entering the league of Apollo and KKR. Blackstone, which BlackRock was spun out of decades ago, still manages almost twice as much in private assets.
Alternatives aren’t wholly new to BlackRock — it had about $300 billion in them at the end of 2023. But the deals fundamentally change the way BlackRock makes money. One of its biggest funds, the iShares Core S&P 500 ETF, also manages $600 billion in assets. But with a fee of only 0.03%, it brings in about $180 million in annual revenue. The $600 billion in alternative assets, once the HPS deal closes, is expected to bring in roughly $3 billion in annual investment advisory and administrative base fees. And this doesn’t include fees based on performance. Alternative revenue would account for more than 15% of the company’s annual total.
Private markets have always offered lavish rewards. So why is BlackRock buying now? A shift in private markets. For decades they’ve largely meant private equity — especially leveraged buyouts in which a PE fund takes control of a struggling company, loads it with debt and then tries to resell it in a few years. That’s a specialized business, and one that’s been less lucrative in recent years because of higher rates and few opportunities to exit investments. But private markets are increasingly encompassing credit and infrastructure — eating up a growing chunk of capital markets — and BlackRock wants a bigger piece of the action.
About two years ago, Chief Executive Officer Larry Fink and his lieutenants decided that BlackRock corporate strategy had to change. With a nod to the tech giants, the company started referring to itself as a “cloudlike platform” for investors, where they could connect to a wide variety of investments. Pensions, big insurers, governments and corporations were all moving deeper into private markets, especially infrastructure and private credit. Sovereign wealth funds across the Middle East were writing big checks, and competition was heating up. Fink and his team signaled they were open to buying — and not just building — a much bigger alternatives business.
Fink was returning to his old playbook of big-time mergers and acquisitions to transform his company. He co-founded BlackRock in the late 1980s as a bond specialist, with a particular focus on using technology to calculate and manage risks in the market. The company expanded through the ’90s, began offering its Aladdin technology system to clients and went public on the New York Stock Exchange in 1999, when it managed $165 billion. In 2006, BlackRock acquired a fund company from Merrill Lynch for more than $9 billion, creating a firm with about $1 trillion in assets. Three years later it bought Barclays Global Investors for $15.2 billion, just as the company’s ETFs were coming to prominence and investors were craving low-cost index products.
BlackRock’s scale and position in public and increasingly private assets have already worried some politicians and regulators. Senator Bernie Sanders, an independent from Vermont, opposed the GIP deal and said, “The asset management industry is quickly becoming a monopoly.” A commissioner at the Federal Energy Regulatory Commission supported the acquisition but nonetheless called for more scrutiny of BlackRock and big money managers owning companies such as power utilities that consumers need.
“You do not need a Ph.D. in economics to see the potential for anticompetitive conduct and outcomes when an investment entity like a huge asset manager seeks to own generation assets that will be — or should be — competitors,” Mark Christie, the commissioner, wrote in September. BlackRock declined to comment.
More broadly, there’s something to be said for having different markets with different investors. “When there is trouble in one domain, credit can keep flowing through other mechanisms, reducing the impact on the real economy,” says Kathryn Judge, a professor at Columbia Law School who studies financial regulation. Blurring the borders between domains could allow financial shocks to spread in ways regulators don’t anticipate.
