The News
Larry Fink, who leads an $11.5 trillion asset empire, created an entirely new type of investing once. He thinks he can do it again.
The BlackRock CEO’s annual letter, released Monday, said that private markets will quickly catch up with public markets in transparency and access. His firm has made a big bet on private markets — $27 billion in acquisitions last year in private credit, infrastructure, and data — and aims to do for that fast-growing corner of finance what its passive index funds did for the stock market.
“Private markets don’t have to be as risky. Or opaque. Or out of reach,” he writes.
The core of BlackRock’s business has long been its index funds, which lead a $15 trillion market of ultracheap ETFs that look to mirror the market, not beat it. “It’s not who we are anymore,” Fink writes.
BlackRock last year bought private credit manager HPS, infrastructure firm GIP, and Preqin, a provider of data about private markets.
“With clearer, more timely data, it becomes possible to index private markets just like we do now with the S&P 500,” he writes. “Once that happens, private markets will be accessible, simple markets.”
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Liz’s view
What he doesn’t say — out loud, anyway — is that they will be a lot cheaper for investors, too. Private fund managers charge high fees for access to their deals. Some are worth it and some aren’t, but the opacity of the market makes it hard to tell who’s who.
The first index funds tracking the S&P 500, launched in the 1970s, set a public benchmark against which stockpickers could be measured. It took a few decades, but many of them were found wanting. Mutual funds fees cratered, the mediocre ones folded, and investors who now realized they were being bamboozled moved their money to cheap index funds. Fees charged by actively managed mutual funds peaked in the 1990s and had fallen more than 60% by 2022, according to Morningstar.
Private-equity investors for decades have paid huge fees without a clear sense of what they’re getting for it. California’s giant state employee pension fund didn’t even have a handle on the fees it was paying, much less its profits net of those fees.
Imagine a world where the returns of Vista, GIP, and Apollo could be easily compared to benchmark indexes tracking the entire universe of private-equity buyouts, infrastructure deals, and private loans.
The finance industry has always made its money in opaque places. If BlackRock can do for private markets what it did for public markets, the 2-and-20 crowd should be nervous.
Room for Disagreement
The smart firms in that crowd already know fees are declining and are moving to get ahead of it. Blackstone, KKR, Carlyle, and others are pushing into retail, offering cheaper products to mom-and-pop investors. The rise of co-invest arrangements with big pensions and sovereign wealth funds — in which those investors get to piggyback fee-free on some of their managers deals — was the first chink in the armor, and 2-and-20 looks a lot more than 1-and-15 these days anyway.
Know More
Notably absent from the letter: any mention of ESG or diversity (beyond that of a varied, well-balanced investment portfolio). Fink led the charge toward socially progressive investing in the late 2010s before becoming a target for Republican politicians hunting for “woke” bias in boardrooms. He quickly backpedaled and, like many CEOs these days, talks less about saving the world and more about making money.
Notable
- Substacker Amit Sinha notes a similar shift in the hedge-fund world a decade ago, when consultants started providing performance data. Investors “will be the ultimate beneficiaries of this revolution, but the quantitative revolution can also be highly beneficial to the asset managers who embrace a quantitative mindset.” (He joined Ares last year.)