BlackRock and Its CEO Are Making A Private Equity Bet
BlackRock Inc. and Chief Executive Laurence Fink agreed to invest with private-equity firm Gallatin Point Capital, part of a push by the world’s largest asset manager to become bigger in alternative investments.
The fund giant pledged to invest up to $400 million of client money alongside Gallatin’s investments, people familiar with the matter said. Mr. Fink is also investing some of his own personal money with a fund maintained by the Greenwich, Conn.-based private-equity firm, founded in 2017 by former BlackRock alternative-investment chief Matt Botein and former U.S. Treasury official Lee Sachs.
The commitment gives BlackRock a new foothold in privately held companies, one of the few corners of Wall Street not currently dominated by the giant investment firm.
It also illustrates the pull of private capital markets, which have surpassed public markets by some measures to become the more popular way for companies to raise money in the U.S.
The growth of the private markets is fueled by companies eager to raise money without the regulatory burdens of going public and by investors looking for new ways to score large payouts outside of the stock and bond market. It is transforming how companies grow and cutting off a huge swath of companies from the reach of mom-and-pop investors.
The $400 million pledge BlackRock made on behalf of clients will comprise about 1/3 of the roughly $1.2 billion raised by Gallatin Point for deals as the private investment firm seeks stakes in lenders, insurers, financial institutions and financial assets such as loan pools. It is unclear how much Mr. Fink personally invested.
BlackRock is now a major player in everything from stock and bond trading to software that helps financial institutions assess their risks. It is also one of the biggest beneficiaries of a decadelong investor shift to cheaper funds that mimic stock and bond indexes, giving it a total of $6.3 trillion in assets as of June 30. Roughly two-thirds of those assets are in index funds or exchange-traded funds based on indexes.
Its push into alternative investments is an effort to bulk up on products where BlackRock can charge higher fees, lock in investor capital over a period of years and promise pension funds, endowments and other clients higher returns. BlackRock is also trying to raise money it can use to buy and hold direct stakes in companies.
These holdings – which include private equity and infrastructure – amounted to over $100 billion as of June. That is roughly 2% of the investments BlackRock managed as of that date, but the holdings reeled in roughly 10% of the company’s fee revenues during 2017.
Mr. Botein was in charge of that business while at BlackRock. He started with the firm in 2009 and launched a group that made illiquid, or infrequently traded, investments. One of his first tasks when he became head of the firm’s alternative assets group in 2010 was to knit together disparate groups BlackRock had amassed from acquisitions of companies like Barclays Global Investors and Merrill Lynch Investment Managers.
He stepped down last year to launch Gallatin Point with Mr. Sachs, a former top aide to Treasury Secretary Timothy Geithner who was in charge of a team that responded to the 2008 financial crisis. Mr. Sachs has also worked as chief executive of Alliance Partners, an asset manager for financial institutions that attracted a BlackRock investment in 2011.
BlackRock and Mr. Botein are maintaining close ties on a number of fronts. BlackRock has the option to get a piece of any deal Gallatin Point makes so long as BlackRock’s stake in those businesses are under 24.9%. It can also opt out of any investment. The client money being committed by BlackRock will go into a separately managed pool that will co-invest in Gallatin Point’s deals.
BlackRock, which is part owned by Pittsburgh bank PNC Financial Services Group Inc., has avoided going above a 24.9% ownership threshold with any financial services company to stay away from added regulatory burdens.
Gallatin Point has also tapped BlackRock’s risk analytics group to evaluate some deals, said the people familiar with the matter. Mr. Botein is also an adviser to some older funds of his past firm.
Some of Gallatin Point’s early investments range from a pool of student loans to an insurance firm called Canopius and various financial businesses managed by family conglomerate Hunt Companies. BlackRock participated in these deals, according to the people familiar with the matter.
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